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How this is calculated
A = P × (1 + r/n)^(n × t)
r = annual rate ÷ 100, n = compounds per year, t = time in yearsCompound interest is calculated on the principal plus the interest already added, using A = P × (1 + r/n)^(n × t). More frequent compounding (monthly vs yearly) grows the amount faster at the same annual rate.
Frequently Asked Questions
What is the compound interest formula?
A = P × (1 + r/n)^(n × t), where P is the principal, r is the annual rate (as a decimal), n is the number of compounding periods per year, and t is time in years. Total interest = A − P.
How is compound interest different from simple interest?
Simple interest earns only on the original principal. Compound interest earns on the principal plus the interest already added, so the amount grows faster over time — especially with longer periods and more frequent compounding.
How often do banks compound fixed deposit interest in India?
Most Indian banks compound FD interest quarterly. So the effective annual yield is slightly higher than the quoted annual rate — always check the compounding frequency when comparing FD rates.
Do credit card balances also compound?
Yes. Unpaid credit card balances typically attract interest calculated on the outstanding amount, which can compound quickly. Paying the full statement dues each month is the cheapest way to avoid it.