Does compounding frequency make a big difference?

It has a modest effect — monthly compounding yields slightly more than annual compounding for the same stated rate, because interest starts earning interest sooner.

How is this different from simple interest?

Simple interest is calculated only on the original principal for the whole period. Compound interest is calculated on the principal plus any interest already earned, so it grows faster over time.

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Compound Interest Calculator

See how principal, rate, time and compounding frequency combine to grow an investment — or a debt.

Details

Principal amount ₹1,00,000

Annual interest rate 10%

Time period (years) 5 yrs

Compounding frequency

Result

Final amount

₹0

Principal₹0

Compound interest₹0

How compound interest is calculated

Compound interest is interest earned on both the original principal and the interest already accumulated. The more frequently it compounds, the slightly faster the balance grows, for the same stated annual rate.

A = P × (1 + r/n)^(n×t)
P = principal, r = annual rate ÷ 100, n = compounding frequency per year, t = years

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Figures are estimates for planning purposes only and do not constitute financial advice.