Compound Interest

A equals P times (1 plus r divided by n) to the power (n times t), where P is the principal, r is the annual rate as a decimal, n is the number of compounding periods per year, and t is time in years. The interest earned is A minus P. For ₹1,00,000 at 8 percent compounded yearly for 10 years, A is about ₹2,15,892.

More frequent compounding means slightly higher returns because interest starts earning interest sooner. ₹1,00,000 at 10 percent for 10 years grows to ₹2,59,374 yearly, ₹2,70,704 monthly, and ₹2,71,791 daily. The jump from yearly to monthly is meaningful; monthly to daily is almost nothing.

Compound interest is always at least as big as simple interest, and the gap widens with time. ₹50,000 at 8 percent for 5 years gives ₹20,000 simple interest but ₹23,466 compound. Over 20 years the same deposit yields ₹80,000 simple but ₹1,82,961 compound : more than double the gain.

The rule of 72 is a quick shortcut: divide 72 by your annual rate to estimate how many years it takes your money to double. At 8 percent it doubles in roughly 9 years; at 12 percent in about 6 years. It is a back-of-envelope check, not exact, but accurate to within a few months for rates between 5 and 15 percent.

Because growth is exponential. ₹10,00,000 invested for 30 years grows to ₹1,00,62,657 at 8 percent but ₹2,42,72,625 at 11 percent : a 3-percentage-point gap creates more than double the final corpus. Even a 1 percent lower fee or higher return compounds into lakhs over a long investing horizon.

No. This calculator assumes a fixed rate and steady compounding for the entire period, which fits FDs and PPF reasonably well but not equity mutual funds, where returns are variable. Use the numbers as a learning illustration, and always check the actual product terms before investing.