Compound Interest Calculator — How Compounding Works
Compounding is often called the "eighth wonder of the world" — and with good reason. Unlike simple interest (which earns only on the principal), compound interest earns on both the principal and the accumulated interest. Over long periods, this creates exponential growth.
Compound interest formula
A = P × (1 + r/n)n×t
- A = final corpus
- P = principal amount
- r = annual interest rate (as decimal, e.g. 0.12 for 12%)
- n = compounding frequency (12 for monthly, 4 for quarterly, 1 for yearly)
- t = time in years
Simple vs compound interest — the difference
₹1,00,000 at 12% for 10 years:
- Simple interest: ₹1,00,000 + ₹1,20,000 interest = ₹2,20,000
- Compound (yearly): ₹3,10,585 — ₹90,585 more from reinvesting
- Compound (monthly): ₹3,30,039 — even more from more frequent compounding
The Rule of 72
A quick mental trick: divide 72 by your annual rate to find years to double your money.
- At 12%: 72 ÷ 12 = 6 years to double
- At 8%: 72 ÷ 8 = 9 years to double
- At 6%: 72 ÷ 6 = 12 years to double
Common compounding investments in India
- Fixed Deposits: quarterly compounding, rate 6.5–7.5%
- PPF: yearly compounding, currently 7.1%
- EPF: yearly compounding, currently 8.25%
- Mutual Funds: effective compounding via NAV growth — variable rate
The key insight: the earlier you start, the more compounding works in your favour. 5 extra years at the start can mean more than 10 extra years at the end.