Compound Interest Calculator
Discover the power of compounding. Calculate how your money grows over time with interest on interest.
Investment Details
Total Amount
After 10 years
Principal Amount
Total Interest
Wealth Distribution
Compounding Insights
Your initial investment of ₹1,00,000 will grow to ₹2,59,374 in 10 years.
Interest makes up 61.4% of your final wealth, demonstrating the power of compounding.
Rule of 72: At 10% interest, your money will double in approximately 7.2 years.
Year-on-Year Growth
| Year | Principal | Accumulated Interest | Total Balance |
|---|---|---|---|
| Year 1 | ₹1,00,000 | ₹10,000 | ₹1,10,000 |
| Year 2 | ₹1,00,000 | ₹21,000 | ₹1,21,000 |
| Year 3 | ₹1,00,000 | ₹33,100 | ₹1,33,100 |
| Year 4 | ₹1,00,000 | ₹46,410 | ₹1,46,410 |
| Year 5 | ₹1,00,000 | ₹61,051 | ₹1,61,051 |
| Year 6 | ₹1,00,000 | ₹77,156 | ₹1,77,156 |
| Year 7 | ₹1,00,000 | ₹94,872 | ₹1,94,872 |
| Year 8 | ₹1,00,000 | ₹1,14,359 | ₹2,14,359 |
| Year 9 | ₹1,00,000 | ₹1,35,795 | ₹2,35,795 |
| Year 10 | ₹1,00,000 | ₹1,59,374 | ₹2,59,374 |
Understanding Compound Interest
Albert Einstein famously called compound interest the "eighth wonder of the world." He who understands it, earns it; he who doesn't, pays it.
What is Compound Interest?
Unlike simple interest, which is calculated only on the initial principal, compound interest is calculated on the principal plus the accumulated interest of previous periods. It's essentially "interest on interest."
- A = Final Amount
- P = Principal (Initial Investment)
- r = Annual Interest Rate (in decimal)
- n = Number of times interest is compounded per year
- t = Time in years
The Impact of Compounding Frequency
The frequency of compounding plays a significant role in how fast your money grows. The more frequently interest is added to your principal, the faster your wealth accumulates.
Annual vs Monthly
An investment compounded monthly will yield a higher final amount than the same investment compounded annually at the same interest rate.
Continuous Compounding
The theoretical limit of compounding frequency is continuous compounding, where interest is calculated and added instantaneously.
The Rule of 72
Want to know how long it will take to double your money? Divide 72 by your annual interest rate. For example, if you earn 8% interest, your money will double in 9 years (72 ÷ 8 = 9).
Frequently Asked Questions
What is Compound Interest?
Compound interest is the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. It's essentially 'interest on interest', which makes your wealth grow at an accelerating rate.
How is Compound Interest calculated?
The formula is A = P(1 + r/n)^(nt), where 'A' is the final amount, 'P' is the principal balance, 'r' is the annual interest rate (decimal), 'n' is the number of times interest is compounded per year, and 't' is the number of years.
What is compounding frequency?
Compounding frequency is how often the accumulated interest is added to the principal balance. It can be yearly, half-yearly, quarterly, monthly, or even daily. The more frequent the compounding, the higher the final amount.
What is the Rule of 72?
The Rule of 72 is a quick mental math shortcut to estimate how long it will take for an investment to double. You simply divide 72 by the annual interest rate. For example, at an 8% interest rate, your money will double in approximately 9 years (72 / 8 = 9).
What is the difference between Simple and Compound Interest?
Simple interest is calculated only on the principal amount. Compound interest is calculated on the principal amount AND the accumulated interest of previous periods. Over long periods, compound interest generates significantly more wealth.