Simple interest is calculated only on the principal; compound interest is calculated on principal plus the interest already earned. Over long periods, compounding makes a dramatic difference.
Key takeaways
- Simple interest = P × R × T ÷ 100
- Compound amount = P × (1 + R/n)^(n×T)
- More frequent compounding (quarterly vs yearly) earns slightly more.
- Time matters more than rate — start early.
₹1 lakh at 8% — simple vs compound
| Years | Simple interest total | Compound (yearly) total |
|---|---|---|
| 5 | ₹1,40,000 | ₹1,46,933 |
| 10 | ₹1,80,000 | ₹2,15,892 |
| 20 | ₹2,60,000 | ₹4,66,096 |
| 30 | ₹3,40,000 | ₹10,06,266 |
Compounding frequency (₹1 lakh, 8%, 10 years)
| Frequency | Maturity |
|---|---|
| Yearly | ₹2,15,892 |
| Half-yearly | ₹2,19,112 |
| Quarterly | ₹2,20,804 |
| Monthly | ₹2,21,964 |
The Rule of 72
Years to double ≈ 72 ÷ interest rate. At 8%, money doubles in about 9 years; at 12%, about 6 years.
Where you see each
| Simple | Compound |
|---|---|
| Some short-term loans, SCSS/POMIS payouts | FDs (cumulative), PPF, SSY, mutual funds, credit card debt |
Compounding also works against you on debt: unpaid credit-card interest compounds monthly.
Your action checklist
- Use the calculator with your exact loan or deposit details.
- Change one input at a time to see its effect.
- Add fees, taxes and charges that the calculator ignores.
- Compare the total rupee cost or return, not only the rate.
- Save the results and recheck when rates change.
FAQs
Does PPF compound?
Yes, annually.
Is compound interest always better?
For savings, yes. For borrowing, compounding increases what you owe.
Try the SIP calculator and PPF calculator.
