Compound Interest Formula: How Your Money Grows Exponentially

"Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it." Whether this quote is genuinely from Einstein is debated — but the math behind it is unambiguous. Here's how compounding actually works.

The Compound Interest Formula

A = P(1 + r/n)^(nt)

• A = Final amount
• P = Principal (starting amount)
• r = Annual interest rate (as decimal, e.g., 0.08 for 8%)
• n = Number of times interest compounds per year
• t = Time in years

Compounding Frequency Matters

₹1 lakh at 8% for 10 years:

• Annual compounding: ₹2,15,892
• Quarterly compounding: ₹2,20,804
• Monthly compounding: ₹2,21,964
• Daily compounding: ₹2,22,534

The Rule of 72

Divide 72 by your interest rate to find how many years it takes to double your money. At 8%: 72/8 = 9 years to double. At 12%: 72/12 = 6 years. At 1% (savings account): 72 years. This is why low interest savings accounts destroy wealth in real terms.

The Power of Starting Early

Investor A starts at 25, invests ₹5,000/month until 35, then stops (total: ₹6 lakhs). Investor B starts at 35, invests ₹5,000/month until 65 (total: ₹18 lakhs). At 60, at 10% annual return, Investor A has more — because of 10 extra years of compounding. Time is the most powerful variable in compound interest.

Calculate compound growth with our Compound Interest Calculator.