Compound Interest Calculator
Calculate how your investments can grow over time
Investment Growth Projection
The Power of Compound Interest: Your Guide to Wealth Creation
Compound interest is often called the “eighth wonder of the world” for its ability to grow wealth exponentially over time. Our compound interest calculator helps you visualize how your investments can grow when earnings are reinvested to generate additional earnings.
Did you know? ₹10,000 invested at 8% annual interest would grow to ₹46,610 in 20 years with compound interest, compared to just ₹26,000 with simple interest.
How Compound Interest Works
Compound interest differs from simple interest in that it earns interest on both the initial principal and the accumulated interest from previous periods. The formula for compound interest is:
A = P × (1 + r/n)^(n×t)
Where:
A = the future value of the investment
P = the principal investment amount
r = the annual interest rate (decimal)
n = number of times interest is compounded per year
t = time the money is invested for (in years)
Key Factors Affecting Compound Growth
- Principal Amount: The initial sum invested
- Interest Rate: Higher rates accelerate growth
- Time Horizon: Longer periods allow more compounding cycles
- Compounding Frequency: More frequent compounding yields higher returns
- Regular Contributions: Additional investments boost growth significantly
Practical Applications of Compound Interest
1. Retirement Planning
Starting early with small amounts can create substantial retirement funds due to compounding over decades.
2. Education Savings
Systematic investments in child education plans benefit from long compounding periods.
3. Wealth Creation
Disciplined investing in growth instruments can generate passive income streams.
4. Debt Management
Understanding how compounding works against you with loans can motivate faster repayment.
Strategies to Maximize Compound Growth
- Start Early: Even small amounts grow significantly over long periods
- Invest Regularly: Consistent contributions amplify compounding effects
- Reinvest Dividends: Allows your earnings to generate their own earnings
- Choose Higher Frequency: Monthly compounding beats annual compounding
- Be Patient: The most dramatic growth happens in later years
Frequently Asked Questions
Q: How often should interest compound for maximum growth?
A: More frequent compounding (monthly or daily) yields better returns than annual compounding.
Q: Can compound interest work against me?
A: Yes, credit cards and loans use compound interest, causing debt to grow faster if not paid.
Q: What’s the difference between APR and APY?
A: APR doesn’t account for compounding, while APY does, showing the actual annual yield.
Q: How does inflation affect compound interest?
A: Inflation reduces real returns. Aim for returns that outpace inflation.
Q: Are there guaranteed compound interest investments?
A: Fixed deposits and certain bonds offer guaranteed compounding, typically at lower rates.
The Rule of 72
A quick way to estimate how long it takes to double your money at a given interest rate:
Years to double = 72 ÷ interest rate
Example: At 8% interest, your money doubles in about 9 years (72 ÷ 8 = 9).