What is the difference between compound and simple interest?

Simple interest is charged on the original amount only; compound interest is charged on the balance, which includes interest already added. Over one period they are identical. Over thirty years at 8% compounding turns 100 into 1,006 while simple interest reaches 340.

Does compounding frequency matter much?

Less than people expect, and it never runs away. 12% compounded annually gives 12%, monthly gives 12.68%, daily 12.75%, and continuously 12.75% as the ceiling. The rate matters far more than the frequency.

Finance & Loansinterest

Compound Interest Calculator

Compound interest at any frequency, including continuous, with optional monthly additions and the effective annual rate. The only figure that lets you compare two different compounding frequencies honestly.

Also called: ci calculator, compounding calculator, interest on interest.

Maturity value

₹2,70,704

₹2,70,704 after 10 years. You put in ₹1,00,000; compounding added ₹1,70,704. The effective annual rate is 10.47%.

Total invested

₹1,00,000

Interest earned

₹1,70,704

Effective annual rate

10.47%

How this is calculated

An estimate, not an offer or a guarantee. Projected returns assume the rate you entered holds for the whole term, which no market does.

Method and background

This is what the calculation gives for the numbers you entered. It is an estimate, not advice, and it knows nothing about your situation beyond those numbers. Rules for India change on a published schedule; the effective date is shown on every rule-based tool.

How this is calculated

Each period multiplies the balance by one plus the periodic rate, applied m×t times. As the frequency rises the result approaches Pe^rt, which is what continuous compounding means. The effective annual rate collapses any frequency to one comparable number: 10% compounded monthly is an EAR of 10.47%, which beats 10.4% compounded annually.

A = P * (1 + r/m)^(m*t)

P: Principal (currency)
r: Nominal annual rate (decimal)
m: Compounding periods per year
t: Years (years)

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

10% monthly on 1L for 10 years

Principal: ₹1,00,000
Interest rate (per year): 10%
Time: 10
Compounded: Monthly
Added each month: ₹0

Maturity value₹2,70,704

independent computation of 100000*(1+0.10/12)^120; EAR from DRV-003

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continuous compounding is Pe^rt

Principal: ₹1,00,000
Interest rate (per year): 10%
Time: 10
Compounded: Continuously
Added each month: ₹0

Maturity value₹2,71,828

DRV-003 limit: 100000 x e^1 = 271,828.18

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zero rate returns the principal

Principal: ₹1,00,000
Interest rate (per year): 0%
Time: 10
Compounded: Monthly
Added each month: ₹0

Maturity value₹1,00,000

degenerate case

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Method and limits

What it assumes

The return you enter is assumed to hold, unchanged, for the whole period. No market does this.
Returns are compounded at the stated frequency with no taxes, fees or exit loads deducted.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

What is the difference between compound and simple interest?: Simple interest is charged on the original amount only; compound interest is charged on the balance, which includes interest already added. Over one period they are identical. Over thirty years at 8% compounding turns 100 into 1,006 while simple interest reaches 340.
Does compounding frequency matter much?: Less than people expect, and it never runs away. 12% compounded annually gives 12%, monthly gives 12.68%, daily 12.75%, and continuously 12.75% as the ceiling. The rate matters far more than the frequency.