What is Compound Interest?
Compound interest is the process of earning interest not just on your original principal, but also on the interest you have already accumulated. Often called "the eighth wonder of the world," compound interest is the fundamental engine behind all long-term wealth building — from savings accounts and fixed deposits to mutual funds and stock market investments.
Unlike simple interest, which is always calculated on the original principal, compound interest causes your money to grow exponentially over time. The more frequently interest is compounded — monthly versus annually, for example — the faster your money grows. This is why starting to invest early, even with a small amount, makes such a dramatic difference over decades.
How to Use This Calculator
- Enter your starting principal — the amount you are investing today.
- Enter the annual interest rate offered by your bank or investment.
- Select the time period in years.
- Choose compounding frequency — monthly compounding is most common for savings accounts and FDs.
- View your results — the calculator shows exactly how much interest you earn and what your final balance will be.
Formula
- A = Final amount
- P = Principal
- r = Annual interest rate (decimal)
- n = Compounding frequency per year
- t = Time in years
Example
Principal = $10,000 | Rate = 8% | Time = 10 years | Monthly compounding.
Final Amount = $22,196. Total Interest Earned = $12,196 — your money more than doubled.