What is the formula for compound interest?+
CI Formula: A = P × (1 + r/n)^(n×t). Where A = Final amount, P = Principal, r = Annual interest rate (decimal), n = Number of times interest compounds per year, t = Time in years. Compound Interest = A – P. Example: ₹1 lakh at 10% for 5 years, quarterly compounding: A = 1,00,000 × (1+0.10/4)^(4×5) = ₹1,63,862.
What is the difference between compound interest and simple interest?+
Simple Interest (SI) = P × R × T / 100 — interest is calculated only on the original principal. Compound Interest (CI) = P × (1+r/n)^(n×t) – P — interest is calculated on principal + accumulated interest. Over time, CI grows significantly faster than SI. For ₹1 lakh at 10% for 10 years: SI = ₹1 lakh, CI = ₹1.59 lakh (annually) to ₹1.71 lakh (monthly).
What is the Rule of 72?+
Rule of 72 is a quick formula to estimate how long it takes to double your money: Years to double = 72 ÷ Interest Rate. Example: At 8% interest, money doubles in 72÷8 = 9 years. At 12%, it doubles in 6 years. This rule works well for interest rates between 6–20% and is used extensively in financial planning.
Which compounding frequency gives the best returns?+
More frequent compounding gives better returns. Order from best to worst: Continuous > Daily > Monthly > Quarterly > Semi-annually > Annually. The difference between monthly and quarterly compounding is small — ₹1 lakh at 10% for 10 years: monthly = ₹2,70,704; quarterly = ₹2,68,506; annually = ₹2,59,374. Banks typically use quarterly compounding for FDs.
How do banks calculate compound interest on FDs?+
Banks compound FD interest quarterly. The quarterly rate = Annual rate ÷ 4. Every 3 months, the interest earned is added to the principal. For a ₹1 lakh FD at 7% annual rate for 1 year: Quarter 1: Interest = 1,00,000 × 7%/4 = ₹1,750. Quarter 2 principal becomes ₹1,01,750, earns ₹1,780.6, and so on.