Compound Interest Calculator
Harness the eighth wonder of the world. Calculate exact compound interest, effective annual rate (AER), and optional recurring deposits across daily, monthly, quarterly, semi-annual, and annual cycles.
Compounding Variables
0ms Local Engine₹1,00,000
₹52,279
The Mathematical Foundation of Compounding Interest
Explore the mechanics of exponential curves, compounding frequency effects, and regular contribution modeling.
1. Simple Interest vs. Compound Interest
In simple interest, your returns grow linearly (a straight line) because only the original principal generates interest:
Simple Interest = P × r × t
Compound Interest: A = P × (1 + r/n)^(n × t)
Over a 20-year span at 10% annual interest on ₹1,00,000, simple interest generates ₹2,00,000 in interest (total ₹3 Lakhs), whereas annual compounding generates ₹5,72,750 in interest (total ₹6.73 Lakhs) — more than double the simple interest outcome.
2. Impact of Compounding Frequencies
For a nominal rate of 10% per annum on ₹1,00,000 over 5 years, here is how compounding frequency alters the effective return:
| Compounding Cycle | Periods / Year (n) | Effective Annual Rate (EAR) | 5-Year Maturity |
|---|---|---|---|
| Annually | 1 | 10.00% | ₹1,61,051 |
| Semi-Annually | 2 | 10.25% | ₹1,62,889 |
| Quarterly (RBI Bank FD Norm) | 4 | 10.38% | ₹1,63,862 |
| Monthly (Recurring Deposit Norm) | 12 | 10.47% | ₹1,64,531 |
| Daily | 365 | 10.51% | ₹1,64,861 |
3. The Three Levers of Wealth Accumulation
Time Horizon (n)
The exponential exponent. Starting 5 years earlier often creates more wealth than doubling your contribution later.
Rate of Return (r)
Diversifying into equities or mutual funds for 12% CAGR versus keeping cash at 3.5% in a savings bank account.
Regular Deposits
Adding monthly savings into the compounding pot compounds both old and new contributions concurrently.
Frequently Asked Questions on Compound Interest
Master the math, frequencies, and real-world effects of compounding interest.
What is compound interest and how does it work?
What is the formula for compound interest?
What is the Effective Annual Rate (EAR / AER)?
How does compounding frequency impact returns?
What is the Rule of 72?
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