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 rate as a decimal, n is how many times interest compounds per year, and t is the number of years.
Compounding frequency matters. The same 8% annual rate produces slightly more when compounded monthly than yearly, because each month's interest immediately starts earning interest of its own. Daily adds a little more again, though the gap between monthly and daily is small at typical rates.
A worked example
Deposit 10,000 at 8% per year, compounded monthly, for 10 years. The monthly rate is 0.667%, applied 120 times, and 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.
Leave it 20 years instead and the same deposit grows to about 49,268. Doubling the time did not double the interest, it more than quadrupled it. That non-linear curve is the entire argument for starting early.
Where compounding shows up
Savings accounts, fixed deposits, bonds and index funds all compound. So does debt: a credit card at 36% annual interest doubles an unpaid balance in about two years by exactly the same math, which is why the principle that builds savings can also bury borrowers.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is calculated only on your original principal each period. Compound interest is calculated on 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 your product. Most savings accounts compound daily or monthly, fixed deposits often quarterly, and bonds typically yearly. Monthly is a sensible default if you are unsure.
Does this calculator work for any currency?
Yes. The math of compounding is identical everywhere. Use the currency switcher to display results in rupees, dollars, pounds, euros and more. Only the formatting changes.
Is the interest shown before or after tax?
Before tax. Interest is taxed differently in every country and tax band, so we show gross growth. Apply your local rate to the interest figure for an after-tax estimate.
How accurate is the year-by-year table?
It applies the exact formula at each year mark with no intermediate rounding. Your bank may differ slightly due to day-count conventions and when interest is actually credited.
What rate should I assume for long-term planning?
Use the actual rate of the product you hold. For broad planning, 3 to 7% is typical for deposits and 7 to 12% for long-horizon equity investing, before inflation.