Compound Interest Calculator
Result
10,000.00
Principal
4,898.46
Interest Earned
14,898.46
Final Amount
What is Compound Interest?
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It is often called "interest on interest" and is what makes long-term investing so powerful. The more frequently interest is compounded, the faster your money grows.
Albert Einstein reportedly called compound interest "the eighth wonder of the world." Whether investing or borrowing, understanding compound interest is essential to smart financial planning.
Compound vs Simple Interest
With simple interest, you earn interest only on the original principal. With compound interest, each period's interest is added to the principal, and the next period's interest is calculated on that larger amount. Over long periods, this difference becomes enormous. For example, 1 lakh at 10% simple interest for 20 years = 3 lakh. At 10% compound interest = 6.73 lakh.
Frequently Asked Questions
What is the difference between annual and monthly compounding?
Monthly compounding calculates and adds interest 12 times a year, while annual compounding does it once. Monthly compounding results in slightly higher returns because each month's interest starts earning interest sooner.
Which investments use compound interest?
Fixed deposits (FDs), recurring deposits, Public Provident Fund (PPF), mutual funds, and savings accounts all benefit from compounding. Most FDs in India compound quarterly.
How does compounding frequency affect returns?
More frequent compounding = higher effective annual yield (EAY). Daily compounding produces slightly more than monthly, which produces more than quarterly, which produces more than annual. The difference becomes significant over long periods.