Compound vs simple interest — the one idea that builds wealth
Simple interest pays you only on your original principal, year after year. Compound interest pays you on the principal and on the interest you have already earned — interest on interest. Over short periods the difference looks small; over long periods it is enormous.
This calculator shows both, side by side. Use the toggle to switch between compound and simple interest, and — in compound mode — pick how often the interest is added back (compounded): yearly, half-yearly, quarterly or monthly. The more often it compounds, the faster the curve bends upward.
The formulas this calculator uses
Compound interest (compounded f times a year):
A = P × (1 + r / (100 × f))^(f × t)
Simple interest:
SI = P × r × t / 100
- P = principal (the amount you start with)
- r = annual interest rate in %
- t = time in years (6 months = 0.5)
- f = compounding frequency: 1 yearly, 2 half-yearly, 4 quarterly, 12 monthly
A worked example: ₹1,00,000 at 8% for 5 years
| Method | Maturity amount | Interest earned |
|---|---|---|
| Simple interest | ₹1,40,000 | ₹40,000 |
| Compound — yearly | ₹1,46,933 | ₹46,933 |
| Compound — quarterly | ₹1,48,595 | ₹48,595 |
| Compound — monthly | ₹1,48,985 | ₹48,985 |
Two things stand out. Compounding beats simple interest by nearly ₹7,000 in just five years — and the gap widens every year you stay invested. And more frequent compounding helps, but with diminishing returns: quarterly adds ₹1,662 over yearly, while monthly adds only ₹390 more. Quarterly compounding at a nominal 8% actually yields an effective 8.24% a year — that is why an FD receipt often quotes a “yield” higher than its interest rate.
Where you meet each one in India
Simple interest is now the exception: gold loans and some short-term or informal lending quote it, and courts and delayed-payment clauses often award it.
Compound interest working for you: bank FDs and RDs compound quarterly, PPF compounds yearly, and savings-account interest is calculated on your daily balance and credited quarterly or half-yearly. Market-linked investing — the kind our SIP and Lumpsum calculators model — grows the same compounding way, just at a rate the market decides.
Compound interest working against you: credit-card dues compound monthly at 30–45% a year, and loan interest accrues monthly on the outstanding balance. The same force that grows a deposit can sink a borrower — which is why clearing high-interest debt is usually the best “investment” available.
The rule of 72 — quick doubling math
Divide 72 by the annual rate to estimate how many years money takes to double with yearly compounding. At 8%, that is 72 ÷ 8 ≈ 9 years (the exact answer is 9.006 — the rule is remarkably good between roughly 4% and 15%). It also works in reverse: at 6% inflation, prices double — and your money halves in purchasing power — in about 12 years.
A note on real bank products
This is a general-purpose interest calculator. Real deposits add product-specific details — banks count days rather than neat quarters, FD interest is taxable and may attract TDS, and rates vary by bank and tenure. For those, use the dedicated FD calculator (cumulative and monthly-income payout modes) or the RD calculator for monthly saving — for the pure mathematics of growth, everything you need is on this page.