Compound Interest
Compounding returns
Reviewed by the PaisaTools Editorial Team · Last reviewed September 2026
How to use: Enter principal, rate, years, and how often it compounds.
Example₹1 lakh at 10% for 5 years (yearly) → ₹1,61,051
Total amount after 5 years
₹1,61,051
Principal
₹1,00,000
Interest earned
₹61,051
Growth over time
Compounding is the engine behind most long-term wealth. Each period's interest joins the principal and earns interest itself, so growth accelerates the longer you stay invested.
Uses the compound-interest identity A = P × (1 + r/k)^(k·t) with your chosen compounding frequency k — the same textbook formula banks and bonds are priced on.
- Assumes a fixed rate and regular compounding.
- Ignores tax on interest and the effect of inflation.
- What is compound interest?
- Interest earned on both your principal and the interest already accumulated — 'interest on interest'. It grows faster than simple interest over time.
- How does compounding frequency affect returns?
- More frequent compounding (monthly vs yearly) gives a slightly higher amount for the same rate, because interest is added to the balance more often.
- What's the formula?
- A = P × (1 + r/n)^(n×t), where P is principal, r is the annual rate, n is compounding periods per year, and t is years.
Related guides
- Simple vs compound interest: the difference explainedOne is charged on your original amount; the other earns interest on your interest. Over years the gap becomes enormous. Where you meet each.
- How much SIP do you need to reach ₹1 crore?The monthly SIP that grows to ₹1 crore — for 10, 15, 20 and 25 years — and why starting early does most of the work.
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