Compound Interest Calculator

Compound interest is the interest earned on both the original principal and on the accumulated interest from previous periods — interest earning interest. It is the single most important idea in personal finance, and the engine behind every Indian bank FD, RD, NSC, KVP, PPF and Sukanya Samriddhi (SSY) return. This calculator takes your principal, annual rate, time horizon and compounding frequency and instantly shows the maturity amount, the compound interest earned, the Effective Annual Rate, and a year-by-year breakdown of how your money grows. It is built for savers comparing FD offers, parents planning a child's education corpus, and anyone wanting to see what disciplined long-term compounding can do in rupee terms.

Formula

A = P × (1 + r/n)n × t

Where P is the principal, r is the annual rate as a decimal (8% → 0.08), n is the number of compoundings per year (1 annual / 2 half-yearly / 4 quarterly / 12 monthly / 365 daily), and t is the time in years. The compound interest actually earned is then CI = A − P. The only value that changes between an FD, a PPF account and an NSC certificate is n — the formula itself stays identical.

Worked example (₹1 lakh FD)

Take ₹1,00,000 invested at 8% per annum, compounded quarterly (the RBI norm for bank FDs), for 5 years. Plugging in: n = 4, t = 5, so there are 20 quarters at a periodic rate of 8 ÷ 4 = 2% each. The maturity amount is A = ₹1,00,000 × (1.02)20 ≈ ₹1,48,595, i.e. ₹48,595 of compound interest. Plain simple interest on the same deposit would pay only ₹40,000 — so compounding earns you an extra ₹8,595, a 21.5% premium, just from interest-on-interest. Stretch the same deposit to 10 years and it grows to about ₹2,20,804; over 20 years it reaches roughly ₹4,87,544 — nearly five times the principal.

Compounding frequency & EAR

The Effective Annual Rate EAR = (1 + r/n)n − 1 is what you actually earn per year once compounding is accounted for — the apples-to-apples figure for comparing two instruments with different conventions. At a nominal 8%, EAR rises from 8.000% (annual) to 8.160% (half-yearly) to 8.243% (quarterly) to 8.300% (monthly) to 8.328% (daily). Notice the gap is small: the headline rate and the time horizon matter far more than the frequency. But on large balances over long horizons, even that fraction of a percent becomes real money, so when two FD offers carry the same nominal rate, the one compounding more often wins.

Indian banking & scheme conventions

Indian bank FDs compound quarterly by RBI norm — that is the default selected here. Savings accounts compound daily on the closing balance but credit interest monthly. PPF compounds annually with the credit posted on 31 March, so the timing of your deposit within the year matters. NSC compounds annually but the interest is reinvested, so it behaves like a cumulative CI instrument. SSY compounds annually too. Mutual funds do not compound in the traditional sense — the NAV moves with the market and the post-facto CAGR is the annualised return; do not treat an equity SIP as a guaranteed compounding product.

Key factors & tips

• Time is the biggest lever. Because the exponent is n × t, every extra year you stay invested has a larger effect than the last. Starting early beats investing more later.
• Mind the tax. FD and RD interest is fully taxable at your slab, and TDS applies once interest crosses the annual threshold. PPF and SSY are EEE (exempt-exempt-exempt), so their returns are tax-free — a big advantage for savers in the higher slabs.
• Use the additional-deposit field to model yearly top-ups, the way PPF or a recurring savings habit works. Each top-up then compounds along with your existing balance from the following year.
• Beat inflation in real terms. Compare your post-tax return against inflation (historically ~6% in India). A taxable 8% FD can fall below inflation after tax, while tax-free PPF/SSY typically stay ahead.

Common mistakes to avoid

• Entering the rate as a decimal in the rate box — type 8 for 8%, not 0.08.
• Comparing two deposits on the nominal rate when their compounding differs — always compare on EAR instead.
• Assuming a mutual fund "compounds" at a fixed rate; market returns are variable, not guaranteed like an FD.