Compound Interest Explained
Compound interest is the engine behind long-term wealth creation. Unlike simple interest, where interest is calculated only on the principal, compound interest adds the earned interest back to the principal at regular intervals. This creates a snowball effect where your money grows faster over time. Our calculator uses the standard formula and supports flexible compounding frequencies so you can model monthly, quarterly, or annual compounding with ease.
Formula and Variables
The future value formula is FV = P × (1 + r/n)^(n×t), where P is principal, r is annual rate (as a decimal), n is the number of compounding periods per year, and t is the number of years. Interest earned is FV − P. This formula is widely used in savings accounts, fixed deposits, bonds, and investment projections.
How to Use the Calculator
- Enter principal (starting amount)
- Enter annual rate (percentage)
- Enter compounding frequency (e.g., 12 for monthly)
- Enter years to grow
- Click Calculate to see future value and interest
Examples
- ₹10,000 at 8% compounded monthly for 10 years → FV ≈ ₹21,589
- ₹50,000 at 7% compounded quarterly for 5 years → FV ≈ ₹70,355
Why Compounding Matters
Compounding rewards consistency. Even modest rates can lead to substantial growth if you stay invested for longer periods. Increasing n (compounds per year) or t (years) accelerates growth. For recurring contributions, see our SIP calculator to model monthly investments.
Best Practices
- Reinvest returns to maximize compounding
- Keep costs low; high fees reduce effective compounding
- Stay patient; time in the market beats timing the market
FAQ
What compounding frequency should I choose?
Most bank accounts compound monthly; some instruments compound quarterly or annually. Use the value that matches your product terms.
Does inflation affect results?
Nominal returns don’t account for inflation. Use our Inflation Calculator to adjust for purchasing power.
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Advanced Topics
Compounding frequency n growth ko impact karta hai: monthly (12), quarterly (4), annually (1). Effective annual rate (EAR) ≈ (1 + r/n)^(n) − 1. Higher n se EAR thoda badhta hai.
Inflation‑Adjusted Returns
Real return ≈ (1 + nominal) ÷ (1 + inflation) − 1. Agar nominal 10% aur inflation 6% ho to real ≈ (1.10/1.06 − 1) ≈ 3.77%.
Examples
- ₹1,00,000 at 10% annually for 15y → FV ≈ ₹4,17,724
- ₹1,00,000 at 10% monthly (n=12) for 15y → FV ≈ ₹4,45,000+
Best Practices
- Fees/expense ratio ko include karke net r estimate karein
- Long horizon aur consistent contributions se compounding maximize hota hai
FAQ (Extended)
CAGR kya hota hai?
Compound Annual Growth Rate ek average annual growth metric hai jo starting aur ending values se derive hota hai.
Taxes ka effect?
Taxable accounts me post‑tax return nominal se kam hota hai; tax planning zaruri hai.