How compound interest is calculated
Compound interest earns interest on your interest. The tool uses the classic formula:
A = P × (1 + r/n)^(n × t)Where:
- P = principal (your starting deposit)
- r = annual rate as a decimal (8% → 0.08)
- n = compounding periods per year (1 annually, 4 quarterly, 12 monthly, 365 daily)
- t = number of years
Total interest earned is simply A − P. When the rate is 0%, the amount equals the principal — the tool special-cases this so the result is always well-defined.
Why compounding frequency changes the answer
The same headline rate produces different returns depending on how often it compounds. Deposit ₹1,00,000 at 8% for 5 years and you get:
- Annually: ₹1,46,933
- Quarterly: ₹1,48,595
- Monthly: ₹1,48,985
- Daily: ₹1,49,176
That spread is why the calculator also reports the effective annual rate — the single annual figure that captures the real return once compounding is baked in. At 8% nominal compounded quarterly, the effective rate is 8.24%, not 8%. Most Indian bank fixed deposits compound quarterly by default, so picking the wrong frequency is the most common reason a hand calculation disagrees with your bank statement.
Why it matters
Compounding is the quiet force behind every long-horizon financial goal. The earlier money goes in and the longer it stays, the more of your final balance is interest rather than principal — at long tenures the interest portion eventually dwarfs what you originally deposited. Seeing that crossover in real numbers is the whole point of running the calculator before you commit to a deposit or a savings plan.
Privacy
The math runs entirely in your browser. Editing any field produces no network calls, stores nothing in localStorage, and sends nothing to analytics — you can verify this in your browser’s Network tab.
Related calculators
Use the SIP calculator for monthly recurring investments, the PPF calculator for a real-world EEE example of compounding, or the percentage calculator for quick one-off growth figures.