Compound interest is often called the eighth wonder of the world because it helps your money grow on both principal and accumulated returns.

Compound Interest Formula

A = P (1 + r/n)^(n*t)

Where:

  • A = Final amount
  • P = Principal
  • r = Annual interest rate (decimal form)
  • n = Number of compounding periods per year
  • t = Time in years

Simple vs Compound Interest

  • Simple interest: Earns only on the principal
  • Compound interest: Earns on principal plus previously earned interest

This difference becomes dramatic over long periods.

Example

If you invest Rs. 1,00,000 at 10% annual return:

  • Simple interest for 10 years = Rs. 2,00,000 total
  • Compound interest (annual compounding) for 10 years = about Rs. 2,59,374

The extra growth comes from returns on returns.

Ways to Maximize Compounding

  • Start early, even with small amounts
  • Stay invested for longer periods
  • Reinvest all returns
  • Avoid frequent withdrawals

Use Our Compound Interest Calculator

Estimate your future corpus with the Compound Interest Calculator.