What is Compound Interest?
Compound interest is interest calculated on the principal and on the interest already added. Each period, the interest earned joins the balance, so the next period’s interest is a little larger. Over long periods this snowball effect becomes the biggest source of growth.
Compound Interest Formula
- P — principal
- r — annual rate as a decimal (9% = 0.09)
- n — compounding periods per year
- t — time in years
Effect of Compounding Frequency
₹2,00,000 at 9% for 4 years:
| Compounding | Maturity amount | Interest |
|---|---|---|
| Simple interest (no compounding) | ₹2,72,000 | ₹72,000 |
| Yearly | ₹2,82,316 | ₹82,316 |
| Quarterly | ₹2,85,524 | ₹85,524 |
| Monthly | ₹2,86,281 | ₹86,281 |
Quarterly compounding at 9% is equivalent to an effective annual rate of about 9.31%.
Time is the Most Powerful Factor
₹1,00,000 at 10% for 20 years becomes ₹3,00,000 with simple interest but ₹6,72,750 with yearly compounding. The extra ₹3,72,750 is interest earned on interest — and most of it arrives in the last few years.
The Rule of 72
A quick mental check: divide 72 by the annual rate to estimate how many years it takes money to double. At 9%, money doubles in about 8 years; at 12%, in about 6.
Frequently Asked Questions
What is the compound interest formula?
A = P × (1 + r/n)^(n × t). P is the principal, r the annual rate as a decimal, n the number of times interest is compounded per year and t the number of years. Compound interest is A − P.
How much difference does compounding frequency make?
₹2,00,000 at 9% for 4 years grows to ₹2,82,316 with yearly compounding, ₹2,85,524 with quarterly and ₹2,86,281 with monthly. More frequent compounding helps, but the rate and the time period matter far more.
Compound vs simple interest — how big is the gap?
It grows with time. ₹1,00,000 at 10% for 20 years becomes ₹3,00,000 with simple interest but ₹6,72,750 with yearly compounding.
Does the calculator store my numbers?
No. All calculations run inside your browser. The amounts you enter are not sent to our server or saved anywhere.