What is Compound Interest?
Compound interest is interest earned on interest. Instead of paying you only on your original principal, the investment pays interest on the principal plus all previously earned interest — so your money grows at an accelerating rate.
Albert Einstein reportedly called it the eighth wonder of the world. Whether or not he did, the math is genuinely remarkable: small amounts, given enough time, become large fortunes.
The Math Behind It
The compound interest formula is A = P × (1 + r/n)^(n×t), where P is the principal, r the annual rate, n the compounding frequency per year, and t the number of years.
Invest ₹1,00,000 at 10% compounded annually for 20 years and you get about ₹6.73 lakh — nearly seven times your money. The same amount at simple interest would give you just ₹3,00,000.
Compounding Frequency Matters
Interest can compound annually, half-yearly, quarterly, monthly, or daily. The more frequent the compounding, the higher the effective return — daily compounding at 10% beats annual compounding at 10%.
Fixed deposits in India typically compound quarterly, while savings accounts compound monthly. Even small differences in frequency add up significantly over long tenures.
Why Starting Early Wins
Two investors, both targeting ₹1 crore by age 60 at 12% returns: one starting at 25 needs about ₹2,600 per month; the one starting at 35 needs about ₹8,800 per month — more than three times as much for the same result.
The first decade of investing does the least visible work but the most important work. Use our Compound Interest calculator to see how your money grows year by year, and how much earlier you can reach your goal.