Albert Einstein reportedly called compound interest the eighth wonder of the world. While the quote may be apocryphal, the math is real — compounding is the most powerful force in personal finance. Understanding it changes how you think about every financial decision.
Compound Interest Formula
A = P × (1 + r/n)^(n×t)
Where: A = Final amount, P = Principal, r = Annual rate, n = Compounding frequency, t = Time in years
Compounding Frequency Matters
₹1,00,000 invested at 7% annual rate for 10 years:
| Compounding Frequency | Final Amount | Interest Earned |
|---|---|---|
| Annual | ₹1,96,715 | ₹96,715 |
| Quarterly | ₹2,00,160 | ₹1,00,160 |
| Monthly | ₹2,00,967 | ₹1,00,967 |
| Daily | ₹2,01,371 | ₹1,01,371 |
Bank FD Compounding in India
Most Indian bank FDs compound quarterly. A 7% FD compounded quarterly has an effective annual yield of (1 + 0.07/4)^4 − 1 = 7.186%. This difference compounds significantly over 5–10 years. Senior citizen FDs typically earn 0.25–0.75% extra, making the effective yields even higher.
The Doubling Magic — Starting Early vs Late
Two investors, both investing ₹5,000/month at 12% CAGR:
- Investor A starts at age 25, stops at 35 (10 years, ₹6L invested): Corpus at 60 = ₹2.97 crore
- Investor B starts at age 35, continues to 60 (25 years, ₹15L invested): Corpus at 60 = ₹2.99 crore
Use our Compound Interest Calculator to project your exact returns for FD, savings accounts, and any lump sum investment.