Last Updated on March 30, 2026 9:45:56 PM by Vivek Makwana
What Is Compound Interest?
Formula, Calculator & India Guide
Compound interest is earning returns on both your original investment and the interest already accumulated — making your money grow exponentially over time. Used in PPF, FD, SIP, and every major Indian savings product.
Compound interest is when you earn interest on both your original investment (principal) and the interest already earned — so your money grows faster each year. For example, ₹1,00,000 at 7% compound interest becomes ₹1,96,715 in 10 years, compared to just ₹1,70,000 with simple interest. According to SEBI’s investor education resources, Indians who invest in PPF for 15+ years earn 2–3× more than fixed deposits with simple interest due to compounding power. → Learn more, see the live calculator, and compare all Indian investment options below.
What Is Compound Interest?
Compound interest is the process of earning interest on interest. When you invest money, you earn returns on your principal. Next period, those returns are added to your principal — and you earn returns on the total. This snowball effect is why Einstein (reportedly) called compounding “the eighth wonder of the world.”
A Simple Example (₹10,000 at 5% per year)
The Compound Interest Formula
The universal formula used by all banks, mutual fund apps, and financial calculators in India:
Worked Example — SBI FD (₹1,00,000 at 6.8% Quarterly for 5 Years)
A = 1,00,000 × (1 + 0.068/4)^(4×5)
A = 1,00,000 × (1.017)^20
A = 1,00,000 × 1.3999 ≈ ₹1,39,990
Compound Interest Earned = ₹39,990
You can verify current SBI FD rates directly on the SBI Fixed Deposit page.Official
SIP Formula (Monthly Regular Investment)
For systematic monthly investments like SIP in mutual funds:
Example: ₹5,000/month SIP at 12% for 10 years → FV ≈ ₹11.6 Lakh (total invested: ₹6 Lakh — nearly doubled by compounding). Check historical SIP return data on AMFI India’s knowledge centre.Official
Compound Interest vs Simple Interest
Simple Interest is calculated only on the original principal — always the same amount. Compound Interest grows because interest is added to the base every period.
| Factor | Compound Interest ✅ | Simple Interest |
|---|---|---|
| Interest calculated on | Principal + Prev. Interest | Principal only |
| Growth pattern | Exponential | Linear |
| ₹1L × 8% × 10 years | ₹2,15,892 | ₹1,80,000 |
| Where used in India | FD, PPF, SIP, NPS, RD | Some personal loans, quick advances |
| Best for | Long-term savings & investing | Short-term, simple calculations |
Visual: ₹1 Lakh at 8% over 10 Years
| Year | Opening Balance | Interest Earned | Closing Balance |
|---|
Best Compound Interest Investments in India (2026)
Every major Indian savings instrument uses compound interest. Here’s what’s available right now, with rates sourced from India Post’s official savings schemes page:Official
Comparing ₹1,00,000 Across Options Over 15 Years
The Rule of 72 — How Fast Will Your Money Double?
The Rule of 72 is a quick mental math trick: divide 72 by the annual interest rate to find approximately how many years it takes your money to double. This concept is widely recommended by financial regulators — the RBI’s financial literacy portal uses the Rule of 72 to help retail investors understand compounding.Official
72 ÷ Interest Rate = Years to Double
Try it yourself — enter your investment’s interest rate:
| PPF (7.1%) | Doubles in ~10.1 years |
| SSY (8.2%) | Doubles in ~8.8 years |
| Good Equity MF (12%) | Doubles in ~6 years |
| Savings A/c (3%) | Doubles in 24 years 😬 |
