How to calculate compound interest
- Enter the starting amount, the yearly interest rate and the number of years.
- Choose how often interest is added: yearly, half-yearly, quarterly, monthly or daily.
- Optionally, add an amount you'll deposit every month.
- Read the final amount, the interest earned and the effective yearly rate, and follow the growth in the yearly table.
The compound interest formula
A = P × (1 + r/n)n × t
- A is the final amount and P the starting amount.
- r is the yearly rate as a fraction (8% is 0.08).
- n is how many times a year interest is added: 1, 2, 4, 12 or 365.
- t is the number of years.
In plain words: each time interest is added, the next interest is worked out on the bigger balance, so you earn interest on your interest. Monthly deposits are assumed to be made at the end of each month and to earn the same rate from then on, converted to its monthly equivalent so the starting amount still follows the formula above exactly.
Worked example
₹1,00,000 at 8% a year, compounded quarterly, for 10 years:
- r/n = 0.08 ÷ 4 = 0.02, and n × t = 4 × 10 = 40.
- A = 1,00,000 × 1.0240 ≈ ₹2,20,804, so the interest earned is ₹1,20,804.
- The effective yearly rate is 1.024 − 1 ≈ 8.24%.
Adding ₹5,000 every month as well, the balance after 10 years is about ₹11,32,847, from ₹7,00,000 deposited.
How compounding frequency changes the result
₹1,00,000 at 8% for 10 years:
| Compounding | Final amount | Effective yearly rate |
|---|---|---|
| Yearly | ₹2,15,892 | 8.00% |
| Half-yearly | ₹2,19,112 | 8.16% |
| Quarterly | ₹2,20,804 | 8.24% |
| Monthly | ₹2,21,964 | 8.30% |
| Daily | ₹2,22,535 | 8.33% |
More frequent compounding helps, but by less each step. The rate and how long you stay invested matter far more. The results are before tax, and a bank's figure can differ slightly with its own rounding and day count. For a monthly investment in mutual funds, see the SIP calculator.
Common uses
- Estimating a fixed deposit. Indian bank FDs usually compound quarterly. Enter the deposit, the bank's rate and the term to see the maturity amount before tax.
- Saving a fixed amount every month. Add a monthly contribution to a starting balance to see what regular saving in a recurring deposit or savings account could grow to.
- Comparing savings accounts. Compare two accounts with different rates and compounding by their effective yearly rate and their final balance.