Compound Interest Calculator

Compound Interest = Interest calculated on principal PLUS accumulated interest (interest on interest). Einstein allegedly called it the 8th wonder: 'Those who understand it, earn it. Those who don't, pay it.' Example: ₹1L at 10% annual. Year 1: ₹10k interest → Total ₹1.1L. Year 2: 10% on ₹1.1L = ₹11k interest → Total ₹1.21L (extra ₹1k from compounding). Year 10: ₹2.59L (₹1.59L total interest vs ₹1L with simple interest). Year 30: ₹17.45L (16x growth). CRITICAL: Small differences compound massively. 8% vs 10% over 30 years on ₹10L = ₹1.01 Cr vs ₹1.74 Cr (73% more wealth from just 2% higher return). Rule: Start early, reinvest earnings, never interrupt compounding.

More frequent compounding = slightly higher returns (diminishing gains). Example: ₹10L at 10% annual for 10 years. Annual compounding → ₹25.94L. Quarterly (4x/year) → ₹26.85L (+₹91k, 3.5% more). Monthly (12x/year) → ₹27.07L (+₹1.13L, 4.4% more). Daily (365x/year) → ₹27.18L (+₹1.24L, 4.8% more). Formula: A = P(1 + r/n)^(nt), where n = compounding frequency. CRITICAL: Difference between annual and daily = 4.8% on final corpus (not huge). Focus MORE on: (1) Higher interest rate (10% vs 12% matters way more), (2) Longer time horizon (30 years vs 20 years), (3) Regular contributions. Daily compounding best for savings accounts, annual for long-term equity (dividends reinvested annually).

Formula: A = P(1 + r/n)^(nt). A = Final Amount, P = Principal, r = Annual Interest Rate (decimal), n = Compounding per year, t = Years. Example Calculation: ₹5L invested, 8% annual, quarterly compounding, 15 years. P = ₹5,00,000, r = 0.08, n = 4 (quarterly), t = 15. A = ₹5L × (1 + 0.08/4)^(4×15) = ₹5L × (1.02)^60 = ₹5L × 3.281 = ₹16.4L. Interest Earned = ₹16.4L - ₹5L = ₹11.4L. Quick Mental Math (Rule of 72): 72 ÷ 8 = 9 years to double. Check: ₹5L → ₹10L in 9 years, → ₹20L in 18 years (close to ₹16.4L at 15 years). CRITICAL: For regular deposits (SIP), use FV formula: FV = PMT × [(1+r)^n - 1] ÷ r.

Compound interest works AGAINST you in debt (exponential growth of what you owe). Credit Card Example: ₹1L outstanding at 3% per month (36% annual). Month 1: ₹3k interest → Balance ₹1.03L (if no payment). Month 2: 3% on ₹1.03L = ₹3,090 interest → ₹1.06L. Month 12: Balance ₹1.43L (+₹43k interest just from compounding). Month 24: ₹2.03L (doubled in 2 years!). Minimum Payment Trap: Pay only ₹2k/month → Takes 9 years to clear, total payment ₹2.5L (₹1.5L interest, 150% of principal). CRITICAL: Clear high-interest debt FIRST (credit card 36%, personal loan 15-20%). Redirecting ₹10k SIP to debt clearance = 36% 'return' (vs 12% in equity). Debt compounds faster than wealth in most cases.

Simple Interest = Interest on principal only (linear growth). Compound Interest = Interest on principal + interest (exponential growth). Example: ₹10L at 10% for 20 years. Simple Interest: ₹10k/year × 20 = ₹2L interest → Total ₹12L (20% total gain). Compound Interest: ₹67.3L total → ₹57.3L interest (573% total gain). Difference = ₹55.3L (275% more with compounding!). When Simple Used: (1) Short-term loans (car loan EMI calculation), (2) Bonds with annual coupon (if not reinvested), (3) Rent agreements (6% annual increase). When Compound Used: (1) Savings accounts, FDs, (2) Mutual funds (NAV growth), (3) Retirement planning, (4) Debt (credit cards, mortgages). CRITICAL: Always assume compound for long-term calculations (20+ years). Simple grossly underestimates wealth/debt growth.

Rule of 72: Years to Double = 72 ÷ Annual Rate %. Works BEST for 6-12% rates. Accuracy: 6% → 72/6 = 12 years (actual: 11.9, 99% accurate). 8% → 9 years (actual: 9.0, 100% accurate). 10% → 7.2 years (actual: 7.3, 98% accurate). 12% → 6 years (actual: 6.1, 98% accurate). Outside Range: 2% → 72/2 = 36 years (actual: 35, 97% accurate, OK). 20% → 3.6 years (actual: 3.8, 95% accurate, slight error). 50% → 1.44 years (actual: 1.71, 84% accurate, BAD). Alternative Rules: Rule of 69.3 (mathematically precise, harder mental math). Rule of 70 (simpler, works well 1-10%). CRITICAL: Use 72 for quick estimates. For exact calculations, use compound interest formula. Extensions: Rule of 114 (tripling time = 114 ÷ rate), Rule of 144 (quadrupling = 144 ÷ rate).

Reinvest IMMEDIATELY for maximum compounding (minimize idle cash). Asset-wise Strategy: (1) Equity Mutual Funds: Choose Growth option (dividends auto-reinvested into NAV, no cash payout, no tax till redemption). NOT Dividend option (cash paid out, compounding broken, taxed immediately). (2) FDs: Select 'cumulative' (interest reinvested) NOT 'non-cumulative' (quarterly interest paid out). (3) Savings Account: Auto-sweep to liquid fund/FD for idle cash above ₹1L. (4) Dividends (stocks): Set up Dividend Reinvestment Plans (DRIPs) where available (buy more shares automatically). Tax Impact: Growth option mutual funds = No tax till redemption (compounding tax-free). Dividend option = TDS + tax in year received (reduces reinvestment amount). CRITICAL: Every ₹1k received as dividend and NOT reinvested loses compounding potential (₹1k at 12% over 20 years = ₹9.65k opportunity cost).

Real Return = Nominal Return - Inflation (purchasing power adjusted). Example: ₹10L invested at 10% nominal return for 20 years = ₹67.3L. BUT if inflation 6%, goods costing ₹10L today will cost ₹32.1L in 20 years. Real value of ₹67.3L = ₹67.3L ÷ 3.21 = ₹21L (in today's money). Real return = 4% (not 10%). Formula: Real Rate = [(1 + Nominal) ÷ (1 + Inflation)] - 1 = [(1.10) ÷ (1.06)] - 1 = 3.77%. CRITICAL: (1) FD at 7% - 6% inflation = 1% real (wealth barely growing), (2) Equity at 12% - 6% inflation = 6% real (wealth doubling every 12 years in real terms), (3) Always use inflation-adjusted calculations for retirement (else massively underestimate needs). Target Nominal Returns: For 6% inflation, need 12%+ nominal to achieve 6% real growth.

Taxes reduce effective return, slowing compounding. Tax-Deferred vs Taxed Annually: Example: ₹10L at 10% for 20 years, 30% tax bracket. Tax-Deferred (Equity LTCG, PPF): Full 10% compounds for 20 years → ₹67.3L. Tax at end = 10% on gains (LTCG) = ₹5.73L tax → Net ₹61.6L. Taxed Annually (FD, Debt Funds): 10% return - 30% tax = 7% effective annual return. After 20 years at 7% → ₹38.7L (43% LESS than tax-deferred). Tax-Free (PPF, EPF after 5 years): Full ₹67.3L (no tax at all). Difference: ₹67.3L (tax-free) vs ₹38.7L (taxed annually) = 74% MORE wealth with tax-deferred compounding! CRITICAL: (1) Maximize tax-deferred accounts (PPF ₹1.5L, NPS ₹2L, EPF unlimited), (2) Equity mutual funds (tax only on redemption, NOT annual), (3) Avoid taxable debt funds for long-term (switch to equity/PPF).