Compound Interest

See how your money grows with compound interest over time.

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Annual Interest Rate (%)

Time (years)

Compound Frequency

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FAQ

What is the difference between simple and compound interest?

Simple interest is calculated only on the principal. Compound interest is calculated on the principal plus all previously accumulated interest, causing it to grow exponentially over time.

What is the Rule of 72?

Divide 72 by the annual interest rate to estimate how many years it takes to double your money. At 8% annual return, your investment doubles in approximately 9 years (72 ÷ 8).

How does compounding frequency affect growth?

More frequent compounding means slightly higher returns. Daily compounding grows faster than monthly, which grows faster than annual. The difference is small at moderate rates but adds up over long periods.

What is a good annual return to expect?

Savings accounts offer 4–5% (as of 2025). The long-term average return of the S&P 500 index is approximately 10% annually before inflation.

What does CAGR mean?

CAGR (Compound Annual Growth Rate) is the rate at which an investment would have grown if it grew at a steady rate. It smooths out year-to-year volatility to show the effective annual return.

About Compound Interest Calculator

Compound interest is what Albert Einstein (apocryphally) called the eighth wonder of the world — "he who understands it, earns it; he who doesn't, pays it." Unlike simple interest, which is calculated only on the original principal, compound interest is calculated on the principal plus all previously earned interest. The result is exponential growth over time.

The Formula

The compound interest formula is A = P(1 + r/n)^nt, where A is the final amount, P is the principal, r is the annual interest rate (as a decimal), n is the number of times interest is compounded per year, and t is the time in years. A ₹1,00,000 investment at 8% annual interest compounded monthly for 10 years becomes ₹2,21,964 — more than double, with no additional deposits.

The Rule of 72

For quick mental math, divide 72 by your annual return rate to estimate how many years it takes to double your money. At 6% annual return, your investment doubles in 12 years. At 9%, it doubles in 8 years. This works in reverse for debt: a credit card charging 24% interest will double its balance in 3 years if you make no payments.

Compounding Frequency Matters

A savings account that compounds daily will earn marginally more than one that compounds monthly at the same stated interest rate. When comparing financial products, always check whether the rate is nominal (before compounding) or effective annual rate (EAR, which accounts for compounding frequency). For long-term investments, the difference between monthly and daily compounding is small. The difference between starting at 25 versus 35 is enormous.

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