What Is Compound Interest?
**Compound interest** is the interest calculated not only on your initial principal but also on the accumulated interest from previous periods. It’s the key to long-term wealth growth because it lets your money earn interest on both principal and past earnings.
Formula for Compound Interest
A = P (1 + r/n)^(n × t) Where: A = Final amount P = Principal amount r = Annual interest rate (in decimal) n = Number of times interest is compounded per year t = Time in years
Example Calculation
Suppose you invest ₹10,000 at 8% annual interest compounded quarterly for 5 years:
A = 10,000 × (1 + 0.08 / 4)(4×5) = ₹14,859
The total interest earned is ₹4,859.
Benefits of Compound Interest
- Encourages long-term saving and investing.
- Generates exponential wealth growth over time.
- Maximizes returns with higher compounding frequency.
- Works best when you start early and stay consistent.
Applications of Compound Interest
- Fixed deposits (FDs) and recurring deposits (RDs)
- Investment portfolios and SIPs
- Loan interest accumulation
- Retirement savings and education funds
FAQs
Q: What is the difference between simple and compound interest?
A: Simple interest is only on the principal, while compound interest adds previously earned interest to future calculations.
Q: Which compounding frequency gives the best return?
A: The more frequent the compounding (e.g., monthly vs annual), the higher the returns due to interest-on-interest effects.
Q: Can I use this for SIP or FD calculations?
A: Yes, this calculator works perfectly for long-term savings, mutual funds, and fixed deposit growth estimation.
Conclusion
The **Compound Interest Calculator 2025** helps you make smarter investment decisions by visualizing your long-term returns. Whether you invest monthly or annually, compounding ensures that your wealth grows faster over time — turning small savings into big outcomes.