Compound Interest Calculator
Calculate how your investments grow over time with compound interest using our free online calculator. See the power of compounding at different frequencies and make informed investment decisions.
Compound Interest Calculator
How the Compound Interest Calculator Works
Our compound interest calculator uses the following formula to calculate the future value of your investment:
Compound Interest Calculation
The formula used to calculate compound interest is:
- A = P(1 + r/n)^(nt)
Where:
- A = Final Amount
- P = Principal (initial investment)
- r = Annual Interest Rate (decimal)
- n = Number of times interest is compounded per year
- t = Time period in years
For example, if you invest ₹1,00,000 for 5 years at an annual interest rate of 8% compounded monthly:
- Principal (P) = ₹1,00,000
- Annual Interest Rate (r) = 8% = 0.08
- Compounding Frequency (n) = 12 (monthly)
- Time Period (t) = 5 years
- Final Amount (A) = ₹1,00,000 × (1 + 0.08/12)^(12×5) ≈ ₹1,48,976
- Interest Earned = ₹1,48,976 - ₹1,00,000 = ₹48,976
Practical Examples of Compound Interest Calculation
Example 1: Fixed Deposit Investment
Amit invests ₹2,00,000 in a fixed deposit for 3 years at an annual interest rate of 6.5% compounded quarterly:
- Principal = ₹2,00,000
- Annual Interest Rate = 6.5% = 0.065
- Compounding Frequency = 4 (quarterly)
- Time Period = 3 years
- Final Amount = ₹2,00,000 × (1 + 0.065/4)^(4×3) ≈ ₹2,42,508
- Interest Earned = ₹2,42,508 - ₹2,00,000 = ₹42,508
By investing ₹2,00,000 for 3 years, Amit earns ₹42,508 in interest.
Example 2: Long-term Investment
Priya invests ₹5,00,000 for 10 years at an annual interest rate of 10% compounded monthly:
- Principal = ₹5,00,000
- Annual Interest Rate = 10% = 0.10
- Compounding Frequency = 12 (monthly)
- Time Period = 10 years
- Final Amount = ₹5,00,000 × (1 + 0.10/12)^(12×10) ≈ ₹13,46,855
- Interest Earned = ₹13,46,855 - ₹5,00,000 = ₹8,46,855
By investing ₹5,00,000 for 10 years, Priya earns ₹8,46,855 in interest, more than doubling her initial investment.
Frequently Asked Questions
What is compound interest?
Compound interest is the interest calculated on both the initial principal and the accumulated interest from previous periods. It's essentially "interest on interest," which makes your money grow exponentially over time. The more frequently interest is compounded (daily, monthly, quarterly, annually), the more your investment grows.
How does compounding frequency affect returns?
The more frequently interest is compounded, the higher the returns. For example, monthly compounding will yield higher returns than annual compounding for the same principal, interest rate, and time period. This is because interest is calculated and added to the principal more frequently, allowing subsequent interest calculations to be based on a larger amount.
What is the Rule of 72?
The Rule of 72 is a simple way to estimate how long it will take for an investment to double in value. Divide 72 by the annual interest rate (in percentage) to get the approximate number of years. For example, at an 8% annual interest rate, an investment would take approximately 72 ÷ 8 = 9 years to double.
How does inflation affect compound interest returns?
Inflation reduces the real (inflation-adjusted) returns on your investments. To calculate real returns, subtract the inflation rate from your nominal interest rate. For example, if your investment earns 8% annually and inflation is 3%, your real return is approximately 5%. It's important to consider inflation when planning long-term investments.
How accurate is this compound interest calculator?
Our compound interest calculator uses standard financial formulas and provides accurate calculations based on the inputs you provide. However, it assumes a constant interest rate throughout the investment period, which may not reflect real-world conditions where interest rates can fluctuate. For more complex scenarios with varying interest rates or additional contributions, you may need to consult a financial advisor.