What is Compound Interest?
Compound interest is the interest calculated on both the initial principal deposit and the
accumulated interest earned from previous calculation periods. Unlike simple interest—which
only earns returns strictly on the principal balance—compounding reinvests generated
earnings, allowing the total asset base to expand exponentially over time.
Often described as "interest on interest", compounding creates an accelerating snowball
effect. The higher the compounding frequency (daily, monthly, or quarterly vs annual) and
the longer the capital remains invested, the more dramatic the divergence between simple and
compound growth becomes.
How to Use the Compound Interest Calculator
Follow four straightforward steps to project your future investment worth:
1
Enter Initial Principal
Specify your upfront starting capital or opening fixed deposit
balance.
2
Set Annual Interest Rate
Enter expected nominal return rate or bank deposit interest rate
percentage.
3
Select Duration & Frequency
Choose investment horizon in years and select quarterly, monthly,
or annual compounding.
4
Review Compounded Total
Instantly examine total maturity payout, accumulated wealth, and
effective annual yield.
Compound Interest Formula
Standard mathematical formula used to compute compound growth across discrete compounding
intervals:
Example Calculation Walkthrough
Suppose you invest ₹1,00,000 in a fixed-income instrument yielding an
annual interest rate of 8% compounded quarterly (n = 4)
for a period of 5 years (t = 5):
- Initial Principal (P) ₹1,00,000.00
- Periodic Rate (r / n) 0.08 / 4 = 0.02 (2% per quarter)
- Total Compounding Periods (n × t) 4 × 5 = 20 quarters
- Growth Factor (1 + 0.02)^20 1.485947
- Final Maturity Balance (A) ₹1,48,595.00
- Total Compound Interest Earned (A - P) ₹48,595.00
