What is Compound Interest?
Compound interest is the interest on your savings calculated on both the initial principal and the accumulated interest from previous periods. In simpler terms, it is "interest on interest." This creates a snowball effect, accelerating the growth of your investments over time.
Our completely free Compound Interest Calculator helps you forecast how your money will multiply. Whether you are putting money into a fixed deposit, a high-yield savings account, or a stock market portfolio, understanding compound growth is essential for financial planning and wealth accumulation.
The Compound Interest Formula
The standard mathematical formula used to calculate compound interest is:
- A = The future value of the investment/loan, including interest
- P = Principal investment amount (the initial deposit)
- r = Annual interest rate (in decimal)
- n = Number of times that interest is compounded per year
- t = Number of years the money is invested or borrowed for
Worked Example
Suppose you invest ₹1,00,000 (P) at an annual interest rate of 8.5% (r = 0.085) compounded monthly (n = 12) for 10 years (t = 10).
- r/n = 0.085 / 12 = 0.0070833
- nt = 12 x 10 = 120
Plugging these values into the formula gives roughly: A = 1,00,000(1 + 0.0070833)120. The total future value comes out to approximately ₹2,33,264, meaning you earned ₹1,33,264 purely in compound interest.
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