Compound interest means earning interest on your interest. Each period, the interest earned is added to the balance, and the next period’s interest is calculated on that larger amount. Over long periods this makes savings grow much faster than simple interest. This calculator shows the maturity value of a one-time deposit at yearly, half-yearly, quarterly or monthly compounding, with a year-by-year growth table.
How to use the compound interest calculator
- Principal amount: the sum you invest once, such as a fixed deposit.
- Annual rate: the nominal yearly interest rate.
- Time: the number of years the money stays invested.
- Compounding: how often interest is added. Most Indian bank FDs compound quarterly.
- Press Calculate to see the maturity value, interest earned and annual growth.
Compound interest formula
Compound interest = A − P
P = principal r = annual rate (as a decimal) n = compounding periods per year t = years
Worked example: ₹1,00,000 at 8% for 10 years
| Compounding | Maturity value | Interest earned |
|---|---|---|
| Simple interest (no compounding) | ₹1,80,000 | ₹80,000 |
| Yearly | ₹2,15,892 | ₹1,15,892 |
| Quarterly | ₹2,20,804 | ₹1,20,804 |
| Monthly | ₹2,21,964 | ₹1,21,964 |
Compounding adds about ₹36,000–₹42,000 over simple interest in 10 years. More frequent compounding helps, but much less than a higher rate or a longer period does.
Effective annual rate (EAR)
When interest compounds more than once a year, the rate you actually earn is higher than the quoted rate:
A 7% FD compounded quarterly gives an effective yield of (1 + 0.07/4)4 − 1 = 7.19%. Banks often show this as the “annualised yield” on FD rate cards. Compare effective yields, not headline rates, when choosing between deposits.
The Rule of 72
To estimate how long money takes to double at compound interest, divide 72 by the annual rate:
| Annual return | Years to double (Rule of 72) | Typical instrument |
|---|---|---|
| 4% | 18 years | Savings account |
| 7% | ≈ 10.3 years | Bank FD, PPF |
| 8% | 9 years | Senior citizen schemes, EPF |
| 12% | 6 years | Long-term equity (not guaranteed) |
The rule also works the other way. With inflation at 6%, the purchasing power of your money halves in about 12 years. That is why savings need to earn more than inflation.
Where compound interest applies in India
- Fixed deposits: usually compounded quarterly. Cumulative FDs pay out principal plus compounded interest at maturity.
- Recurring deposits: monthly deposits, compounded quarterly.
- PPF: compounded yearly. Interest is calculated monthly on the lowest balance between the 5th and the last day of the month, so deposit before the 5th.
- Post office time deposits: rates are set by the government each quarter, compounded quarterly and paid yearly.
- Loans and credit cards: compounding works against you here. Credit cards charging about 3–3.75% a month compound to over 40% a year if you carry a balance.
Tax reduces compounding
FD interest is taxed every year at your slab rate, even on cumulative FDs where you receive nothing until maturity, and banks deduct TDS above the threshold. At a 30% slab, a 7% FD effectively earns about 4.9%. PPF and EPF interest (within limits) are tax-free, which is why their compounding is so effective over 15+ years.
For regular monthly investments rather than a single deposit, use the SIP Calculator. To see the difference without compounding, use the Simple Interest Calculator.
Frequently asked questions
What is the formula for compound interest?
A = P(1 + r/n)^(nt), where P is the principal, r is the annual rate as a decimal, n is the number of compounding periods per year and t is years. Compound interest is A − P.
How much will ₹1 lakh become in 10 years at 8%?
About ₹2,15,892 with yearly compounding, ₹2,20,804 with quarterly compounding and ₹2,21,964 with monthly compounding. Simple interest would give ₹1,80,000.
Is quarterly compounding better than yearly?
Yes, slightly. More frequent compounding adds interest to the balance sooner. At 8% for 10 years on ₹1 lakh, quarterly gives about ₹4,900 more than yearly.
How often do Indian bank FDs compound?
Most banks compound FD interest quarterly for deposits of 6 months or more. Short deposits under 6 months usually earn simple interest.
How can I double my money with compound interest?
Divide 72 by the interest rate to estimate the years needed. At 8% it takes about 9 years, and at 12% about 6 years.