What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It is the reason why Albert Einstein allegedly called it the 'eighth wonder of the world'.
Unlike simple interest (which is calculated only on the principal), compound interest makes your money grow exponentially. The more frequently interest is compounded (monthly vs yearly), the higher the effective return. Most bank FDs compound quarterly, while savings accounts compound daily.
Formula
A = P × (1 + r/n)^(n×t)
Where: - A = Final amount - P = Principal - r = Annual interest rate (decimal) - n = Compounding frequency per year - t = Time in years
Effective Annual Rate = (1 + r/n)^n − 1
For ₹1,00,000 at 10% for 10 years (quarterly compounding): A = 1,00,000 × (1 + 0.10/4)^(4×10) = ₹2,68,506 Interest = ₹1,68,506
How to use this Compound Interest Calculator?
1. Enter the principal amount. 2. Set the annual interest rate. 3. Choose the time period in years. 4. Select compounding frequency (1=yearly, 2=half-yearly, 4=quarterly, 12=monthly). 5. Compare how different compounding frequencies affect your returns.