How compound interest is calculated
The formula is A = P × (1 + r/n)^(n×t), where P is your starting amount, r is the annual interest rate as a decimal, n is how many times interest compounds per year, and t is the number of years. The result A is the future value of your money.
Compounding frequency matters. The same 8% annual rate produces slightly more when compounded monthly than yearly, because each month's interest starts earning interest of its own immediately. Daily compounding adds a little more again, though the difference between monthly and daily is small at typical rates.
A worked example
Suppose you deposit 10,000 at 8% per year, compounded monthly, for 10 years. The monthly rate is 0.667%, applied 120 times. The future value works out to about 22,196. You earned 12,196 in interest, more than your original deposit, without adding another unit of currency.
Left for 20 years instead, the same deposit grows to about 49,268. Doubling the time did not double the interest: it more than quadrupled it. That non-linear growth is the entire argument for starting early.
The rule of 72
A quick mental shortcut: divide 72 by your interest rate to estimate how many years it takes money to double. At 8%, money doubles roughly every 9 years. At 6%, about every 12 years. It is an approximation, but a remarkably good one for rates under 15%.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is calculated only on your original principal every period. Compound interest is calculated on the principal plus all interest earned so far, so the balance grows faster and the gap widens over time.
Which compounding frequency should I choose?
Match it to your product. Most savings accounts compound daily or monthly, fixed deposits often compound quarterly, and bonds typically pay yearly. If unsure, monthly is a sensible default and the difference between frequencies is small at typical rates.
Does this calculator work for any currency?
Yes. The math of compounding is identical in every currency. Use the currency switcher to display results in rupees, dollars, pounds, euros or others. Only the formatting changes, never the numbers.
Is the interest shown before or after tax?
Before tax. Interest income is taxed differently in every country and tax band, so this calculator shows gross growth. Apply your local tax rate to the interest figure for an after-tax estimate.
How accurate is the year-by-year table?
It applies the exact compound interest formula at each year mark with no rounding until display. Your bank may differ by small amounts due to day-count conventions and when interest is actually credited.
Can compound interest work against me?
Yes. Debt compounds by exactly the same math. A credit card balance at 36% annual interest doubles in roughly two years if unpaid, which is why the same principle that builds savings can bury borrowers.