Question 1

What is compound interest?

Accepted Answer

Compound interest is interest calculated on the principal plus all the interest accumulated so far. This 'interest on interest' effect makes your money grow faster the longer you stay invested.

Question 2

What is the compound interest formula?

Accepted Answer

A = P x (1 + r/n)^(n x t), where P is principal, r is the annual rate, n is the number of times interest compounds per year, and t is the number of years. Compound interest = A - P.

Question 3

Does compounding frequency matter?

Accepted Answer

Yes. More frequent compounding gives a slightly higher return. Monthly compounding earns a little more than quarterly, which earns more than yearly, for the same nominal rate.

Question 4

Why is compound interest called the eighth wonder?

Accepted Answer

Because over long periods it produces dramatic growth. A sum compounding at 12% roughly doubles every 6 years, so small, early, consistent investments can grow into a large corpus.

Year	Amount Invested	Est. Returns	Total Value
Yr 1	₹1.00 L	₹10,381	₹1.10 L
Yr 2	₹1.00 L	₹21,840	₹1.22 L
Yr 3	₹1.00 L	₹34,489	₹1.34 L
Yr 4	₹1.00 L	₹48,451	₹1.48 L
Yr 5	₹1.00 L	₹63,862	₹1.64 L
Yr 6	₹1.00 L	₹80,873	₹1.81 L
Yr 7	₹1.00 L	₹99,650	₹2.00 L
Yr 8	₹1.00 L	₹1.20 L	₹2.20 L
Yr 9	₹1.00 L	₹1.43 L	₹2.43 L
Yr 10	₹1.00 L	₹1.69 L	₹2.69 L

Compound Interest Calculator

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