Compound Interest Calculator
₹1 lakh at 7% FD for 20 years looks like ₹3.87 lakh on paper. After 6% inflation and 20% tax, it is worth just ₹1.7 lakh in today's money. That is the number your bank never puts on the brochure. This calculator shows you the real picture – maturity value, inflation-adjusted purchasing power, post-tax return, and how long to double your money at current rate.
Year-by-Year Breakdown
| Year | Opening Balance | Interest Earned | Top-Up Added | Closing Balance |
|---|
What is Compound Interest and Why It Changes Everything
Compound interest is the single most powerful concept in personal finance. Albert Einstein reportedly called it the eighth wonder of the world. Whether or not he actually said it, the math is undeniable: money invested with compound interest does not grow in a straight line – it grows exponentially. The longer you stay invested, the faster it grows.
The difference between simple and compound interest seems small in year 1. It becomes enormous by year 20. Here is the exact numbers on ₹1 lakh at 10% annual interest:
Simple vs Compound Interest — The Real Gap
| Year | Simple Interest | Compound (Annual) | Compound (Quarterly) | Extra from Compounding |
|---|---|---|---|---|
| 1 | ₹1,10,000 | ₹1,10,000 | ₹1,10,381 | +₹381 |
| 5 | ₹1,50,000 | ₹1,61,051 | ₹1,63,862 | +₹13,862 |
| 10 | ₹2,00,000 | ₹2,59,374 | ₹2,68,506 | +₹68,506 |
| 15 | ₹2,50,000 | ₹4,17,725 | ₹4,37,481 | +₹1,87,481 |
| 20 | ₹3,00,000 | ₹6,72,750 | ₹7,13,965 | +₹4,13,965 |
| 30 | ₹4,00,000 | ₹17,44,940 | ₹19,35,281 | +₹15,35,281 |
At 30 years, compound interest gives you ₹17.4 lakh vs simple interest's ₹4 lakh on the same ₹1 lakh investment. That is 4x more wealth from the same money, simply because of how interest is calculated. This is why starting early matters more than the amount you invest.
The Compound Interest Formula
where A = Maturity amount
P = Principal (initial investment)
r = Annual interest rate (as decimal, e.g. 10% = 0.10)
n = Compounding frequency per year (1=annual, 4=quarterly, 12=monthly, 365=daily)
t = Time in years
Compound Interest = A − P
Worked Example: ₹1 Lakh at 10% Quarterly for 5 Years
| Input | Value | Calculation |
|---|---|---|
| Principal (P) | ₹1,00,000 | – |
| Annual rate (r) | 10% = 0.10 | – |
| Compounding (n) | 4 (quarterly) | – |
| Tenure (t) | 5 years | – |
| Maturity (A) | ₹1,63,862 | 1,00,000 × (1 + 0.10/4)^(4×5) |
| Compound Interest | ₹63,862 | 1,63,862 − 1,00,000 |
| Simple Interest (same inputs) | ₹50,000 | 1,00,000 × 10% × 5 |
| Extra from compounding | +₹13,862 | 63,862 − 50,000 |
Effective Annual Yield (EAY) — The Real Rate
When a bank says "7% quarterly compounding," your effective annual yield is actually higher than 7%. The EAY formula accounts for intra-year compounding:
At 7% quarterly: EAY = (1 + 0.07/4)^4 − 1 = 7.19%
At 7% monthly: EAY = (1 + 0.07/12)^12 − 1 = 7.23%
At 7% daily: EAY = (1 + 0.07/365)^365 − 1 = 7.25%
The difference between quarterly and daily compounding on ₹1 lakh for 10 years at 7% is approximately ₹3,800. Significant but not dramatic – the frequency of compounding matters less than the rate and tenure.
Compounding Frequency Impact on ₹1 Lakh at 10% for 10 Years
| Frequency | Maturity Amount | Interest Earned | EAY | Extra vs Annual |
|---|---|---|---|---|
| Annual | ₹2,59,374 | ₹1,59,374 | 10.00% | – |
| Half-yearly | ₹2,65,330 | ₹1,65,330 | 10.25% | +₹5,956 |
| Quarterly | ₹2,68,506 | ₹1,68,506 | 10.38% | +₹9,132 |
| Monthly | ₹2,70,704 | ₹1,70,704 | 10.47% | +₹11,330 |
| Daily | ₹2,71,791 | ₹1,71,791 | 10.52% | +₹12,417 |
Rule of 72, Real Returns and Where Compound Interest Works in India
The Rule of 72 — Mental Math for Investors
The Rule of 72 is the fastest way to estimate investment growth without a calculator. Divide 72 by the annual interest rate to get the approximate years to double your money:
| Annual Rate | Rule of 72 (Double) | Rule of 114 (Triple) | Rule of 240 (10x) | Actual Years to Double |
|---|---|---|---|---|
| 6% (Post Office RD) | 12.0 years | 19.0 years | 40.0 years | 11.9 years |
| 7% (PPF) | 10.3 years | 16.3 years | 34.3 years | 10.2 years |
| 8% (SSY, EPF) | 9.0 years | 14.3 years | 30.0 years | 9.0 years |
| 10% (Equity avg) | 7.2 years | 11.4 years | 24.0 years | 7.3 years |
| 12% (Nifty hist.) | 6.0 years | 9.5 years | 20.0 years | 6.1 years |
| 15% (Small-cap avg) | 4.8 years | 7.6 years | 16.0 years | 4.9 years |
The Rule of 72 is remarkably accurate for rates between 5% and 12%. At higher rates, it slightly underestimates the doubling time – use the calculator above for precision.
Inflation-Adjusted Real Return — The Number That Actually Matters
Here is the uncomfortable truth: a 7% FD return with 6% inflation gives you a real return of just 0.94% using the Fisher equation. Not 1%, because inflation and returns compound together. This is why your FD that "gives 7%" actually barely grows your purchasing power:
| Investment | Nominal Return | Inflation (India avg) | Real Return | ₹1L after 10yrs (real) |
|---|---|---|---|---|
| Savings Account | 3.5% | 6% | −2.36% | ₹79,200 |
| FD at 7% | 7% | 6% | +0.94% | ₹1,09,700 |
| PPF at 7.1% | 7.1% | 6% | +1.04% | ₹1,11,000 |
| Nifty at 12% | 12% | 6% | +5.66% | ₹1,74,400 |
| Small-cap at 15% | 15% | 6% | +8.49% | ₹2,26,700 |
The real return on an FD is barely above zero. A savings account at 3.5% actually destroys purchasing power – you have more rupees but they buy less. This is why the "Inflation-Adjusted Value" field in this calculator is the most important output for long-term planning. Use our Real Return Calculator to model this for any investment.
Tax Impact on Compound Interest — The Silent Drain
Interest income is fully taxable in India at your slab rate. For someone in the 30% bracket, a 7% FD has a post-tax yield of just 4.9%. Over 10 years on ₹10 lakh, this difference is enormous:
| Tax Slab | Effective FD Rate (7%) | ₹10L after 10yrs | Tax Paid on Interest | vs PPF (7.1%, tax-free) |
|---|---|---|---|---|
| No tax | 7.00% | ₹19,67,150 | ₹0 | PPF gives ₹19,97,150 (+₹30,000) |
| 5% | 6.65% | ₹19,05,000 | ₹~48,000 | PPF gives ₹62,000 more |
| 20% | 5.60% | ₹17,24,000 | ₹~1,93,000 | PPF gives ₹2,73,000 more |
| 30% | 4.90% | ₹15,99,000 | ₹~2,90,000 | PPF gives ₹3,98,000 more |
For anyone in the 20%+ tax bracket, PPF at 7.1% tax-free beats FD at 7% taxable by a significant margin over 10 years. The calculator's post-tax maturity toggle shows you this exact impact for your principal and tenure.
Where Compound Interest Works in India — Ranked by Real Returns
| Instrument | Rate | Compounding | Tax Status | Lock-in | Best For |
|---|---|---|---|---|---|
| PPF | 7.1% (govt) | Annual | EEE (fully tax-free) | 15 years | Long-term, 20%+ bracket |
| SSY | 8.2% (govt) | Annual | EEE (fully tax-free) | 21 years | Girl child education/marriage |
| EPF | 8.25% (govt) | Annual | EEE (up to limits) | Retirement | Salaried employees |
| NSC | 7.7% | Annual | 80C benefit, taxable at exit | 5 years | Conservative 5-year goal |
| Bank FD | 6.5–7.5% | Quarterly | Fully taxable, TDS above ₹40K | Flexible | Short-term, low risk |
| Equity MF | 10–14% hist. | Daily (NAV) | LTCG 12.5% above ₹1.25L | None | 5+ year goals, risk tolerant |
| ELSS | 12–15% hist. | Daily (NAV) | 80C + LTCG 12.5% | 3 years | Tax saving + growth |
The Power of Monthly Top-Up — Why SIP + FD Beats FD Alone
Most investors either invest a lumpsum or do a monthly SIP – rarely both together. But combining a lumpsum with regular monthly top-ups dramatically accelerates growth through two compounding engines working simultaneously.
Example: ₹2 lakh lumpsum + ₹5,000/month at 10% for 10 years gives a maturity of approximately ₹13.8 lakh – vs ₹5.19 lakh from the lumpsum alone or ₹10.34 lakh from the SIP alone. The combined approach outperforms either individually. This is why the top-up input in this calculator exists – most compound interest calculators don't offer this.
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