Compound interest formula
- A — final amount
- P — principal (initial amount)
- r — annual interest rate as a decimal
- n — number of times interest compounds per year
- t — time in years
Worked example
₹1,00,000 at 8% a year, compounded yearly for 10 years: A = 1,00,000 × (1.08)^10 = ₹2,15,892. Compound interest is ₹1,15,892, compared with ₹80,000 of simple interest over the same period — compounding adds ₹35,892.
Why compounding frequency matters
The more often interest is added to your balance, the sooner that interest starts earning interest of its own. Banks in India usually compound fixed deposits quarterly, savings accounts are calculated daily and credited quarterly, and PPF is compounded yearly. Pick the matching frequency to compare products fairly — or compare their effective annual yields.
| Compounding (₹1L, 8%, 10 yrs) | Final amount |
|---|---|
| Yearly | ₹2,15,892 |
| Quarterly | ₹2,20,804 |
| Monthly | ₹2,21,964 |
| Daily | ₹2,22,535 |
Compounding works against you on debt
Credit card balances in India can carry interest of 36–48% a year, compounded monthly. Unpaid balances can double in under two years. Use the same formula to see what revolving debt really costs, and use the EMI calculator to plan a structured payoff instead.
For regular monthly investing rather than a lump sum, try the SIP calculator.
Frequently asked questions
What is compound interest?
Compound interest is interest earned on both your original principal and on interest already added. Over long periods it makes money grow exponentially rather than linearly.
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal: SI = P × R × T / 100. Compound interest adds each period's interest to the principal, so later periods earn interest on a larger base.
Does compounding frequency matter?
Yes, but less than most people think. At 8% for 10 years, ₹1 lakh grows to ₹2,15,892 with yearly compounding and ₹2,22,535 with daily compounding. The rate and time invested matter far more.
What is the Rule of 72?
Divide 72 by the annual interest rate to estimate how many years it takes money to double. At 8%, money doubles in roughly 72 ÷ 8 = 9 years.
Last updated: 22 September 2026Suggest an improvement · Report a problem