Compound Interest Calculator

Compound Interest — The Eighth Wonder of the World

Compound interest means earning interest on your interest. In year 1, you earn interest on your principal. In year 2, you earn interest on principal plus last year's interest. By year 20, the interest is earning more each year than your original deposit did in the first five years combined.

Compare that to simple interest, where you earn a fixed amount each year regardless of how long you have been invested. A ₹1,00,000 FD at 7% simple interest earns ₹7,000/year forever. At 7% compound interest (annually), year 1 earns ₹7,000, year 10 earns ₹13,370, year 20 earns ₹25,786 — on the same original deposit.

Every financial product in India that grows wealth uses compounding: mutual funds, PPF, EPF, FDs, NPS, stocks. The four levers you control are principal, rate, compounding frequency, and time.

The Rule of 72 — Quick Mental Math

The Rule of 72 is a shortcut to estimate how long it takes to double your money. Divide 72 by the annual interest rate, and you get the approximate doubling time.

• PPF at 7.1%: 72 ÷ 7.1 = ~10.1 years to double
• Equity MF at 12%: 72 ÷ 12 = 6 years to double
• FD at 7%: 72 ÷ 7 = ~10.3 years to double
• Small-cap fund at 15%: 72 ÷ 15 = 4.8 years to double
• Savings account at 3.5%: 72 ÷ 3.5 = ~20.6 years to double

This rule is remarkably accurate for rates between 5–20%. It works the other way too: if inflation is 6%, your money's purchasing power halves in 72 ÷ 6 = 12 years. This is why investments below 6% return are wealth-destroying in real terms.

Compounding Frequency Matters

The more often interest is compounded, the more you earn — even at the same nominal rate. This is why bank FD advertisements sometimes show both 'interest rate' and 'effective yield'. The difference is compounding frequency.

For most Indian bank FDs, quarterly compounding is standard. Mutual funds technically compound daily (NAV is calculated daily). PPF compounds annually. When comparing FD rates across banks, check the effective yield — not just the headline rate — especially for half-yearly payout vs cumulative FDs.

Indian FD Rates — Real-World Compounding Examples

As of 2024–25, major Indian banks offer FD rates ranging from 6.5% to 9% for standard tenures, with senior citizen rates typically 0.25–0.5% higher. Small finance banks (like AU Small Finance, Equitas, Jana) offer 8–9% with DICGC insurance up to ₹5 lakh.

Small finance banks carry higher credit risk than large PSU banks — diversify FDs across institutions and stay within the ₹5 lakh DICGC insurance limit per bank. The extra 1–1.5% yield on ₹5 lakh for 5 years is about ₹35,000 extra — meaningful, but not worth concentrating all deposits.