Interest Calculator
Understand the two fundamental ways money grows. Calculate and compare simple and compound interest to make smarter financial decisions.
10K
Simple Interest
Interest is calculated only on the original principal amount. Growth is linear and predictable.
Commonly used for:
- Short-term personal loans
- Car loan financing
- Bills of exchange and promissory notes
Compound Interest
Interest is calculated on the principal plus the accumulated interest. Growth is exponential.
The engine behind:
- Savings Accounts & Fixed Deposits (FDs)
- Lumpsum & SIP Investments
- Retirement funds like EPF and PPF
- Credit card debt
The Power of Compounding: A Real-World Example
Imagine you invest ₹1,00,000 for 20 years at a 10% annual interest rate. Here's how the two types of interest would perform:
- With Simple Interest, you would earn ₹10,000 every year. After 20 years, your total would be ₹1,00,000 (Principal) + ₹2,00,000 (Interest) = ₹3,00,000.
- With Compound Interest (compounded annually), your earnings would grow exponentially. After 20 years, your total would be approximately ₹6,72,750.
That's a difference of over ₹3.7 lakhs, purely from earning "interest on interest."
The Rule of 72: A Quick Mental Shortcut
Want to quickly estimate how long it will take to double your money? Use the Rule of 72. Simply divide 72 by your annual interest rate.
Years to Double ≈ 72 / Interest Rate (%)For example, if your investment earns 8% per year, it will take approximately 9 years (72 / 8) to double in value.
Frequently Asked Questions (FAQ)
What is the main difference between simple and compound interest?
Simple interest is calculated only on the initial principal amount. Compound interest is calculated on the principal plus the accumulated interest from previous periods. This 'interest on interest' effect makes compound interest far more powerful for long-term growth.
How does compounding frequency affect my returns?
The more frequently interest is compounded, the faster your money grows. For the same annual interest rate, daily compounding will yield slightly more than monthly, which yields more than quarterly, which yields more than annual compounding. This is because interest is added to the principal more often, allowing it to start earning its own interest sooner.
What is the Rule of 72?
The Rule of 72 is a quick mental math shortcut to estimate the number of years required to double your money at a fixed annual rate of return. The formula is: Years to Double = 72 / Annual Interest Rate. For example, an investment with an 8% annual return will double in approximately 9 years (72 / 8 = 9).
Is interest income taxable in India?
Yes, interest earned from most sources like Fixed Deposits and savings accounts is taxable under 'Income from Other Sources' as per your income tax slab. However, there are some exemptions, such as up to ₹10,000 in savings account interest under Section 80TTA.