Compound Interest Calculator - Simple vs Compound Interest: Complete Guide
A Compound Interest Calculator helps you understand how money grows exponentially over time when interest is earned on both the principal and the accumulated interest. Often called the "eighth wonder of the world" by Albert Einstein, compound interest is the fundamental principle behind all wealth creation. BudgetDose's free compound interest calculator lets you compare compound interest vs simple interest across different frequencies — daily, monthly, quarterly, and annually.
Compound Interest vs Simple Interest
Simple Interest is calculated only on the principal amount: SI = P × r × t. The interest amount is the same every year.
Compound Interest is calculated on the principal PLUS previously accumulated interest: A = P × (1 + r/n)^(nt). The interest grows every period because you earn "interest on interest."
The difference becomes dramatic over long periods. ₹1 lakh at 10% simple interest for 30 years = ₹4 lakhs. The same at 10% compound interest = ₹17.4 lakhs — a 4× difference! This is why starting early and staying invested matters more than the rate of return.
Effect of Compounding Frequency
The more frequently interest compounds, the more you earn. For ₹1 lakh at 10% for 10 years:
- Annual compounding: ₹2,59,374
- Quarterly compounding: ₹2,68,506
- Monthly compounding: ₹2,70,704
- Daily compounding: ₹2,71,791
While the difference between monthly and daily is small, the difference between annual and quarterly compounding is meaningful — especially for large amounts and long tenures.
Rule of 72: Quick Mental Math for Doubling
The Rule of 72 is a quick way to estimate how many years it takes to double your money at compound interest:
Years to double = 72 / Annual Interest Rate
- At 6%: doubles in 12 years
- At 8%: doubles in 9 years
- At 12%: doubles in 6 years
- At 15%: doubles in 4.8 years
This is why equity mutual funds (12–15% CAGR) create so much more wealth than FDs (6–7%) over 15–20 years.
Pro Tips
- ✓Reinvest all interest and dividends — never withdraw; let compounding work
- ✓Time in market beats timing the market — a 5-year delay in starting can halve your final corpus
- ✓Even a 1% higher return makes a massive difference over 20+ years
- ✓Choose cumulative FDs and growth-option mutual funds to maximize compounding
- ✓Compound interest works against you in loans — pay EMIs on time and prepay when possible