Simple Interest vs Compound Interest
With simple interest, you earn interest only on the original amount. With compound interest, you earn interest on interest — and the difference over time is massive.
Rs 5,937 extra — that is free money earned just because your interest earned interest. And this gap widens dramatically over longer periods.
How Compound Interest Works — Step by Step
Start with Rs 10,000 at 10% per year, compounded annually. Watch how your money snowballs:
Like a snowball rolling downhill — it picks up more snow (interest) the bigger it gets.
The Rule of 72
A quick mental shortcut to estimate how long it takes to double your money at a given interest rate.
The Power of Starting Early
Two people invest Rs 5,000/month at 12% annual returns. One starts at age 25, the other at age 35. By age 55, the difference is staggering.
Person A invested just Rs 6 lakh more but ended up with Rs 1.26 crore more. That is the power of 10 extra years of compounding.
Compound Interest: Friend or Foe?
Compound interest is a double-edged sword. It can build wealth or bury you in debt — depending on which side you are on.
Warning: Credit card companies charge 36-42% APR, compounded monthly. A Rs 50,000 balance left unpaid can become Rs 1,00,000+ in just two years.
Real-World Example: SIP of Rs 5,000/month
You invest Rs 5,000 every month in a mutual fund giving 12% average annual returns for 20 years. Here is what happens:
You put in Rs 12 lakh over 20 years. Compound interest added Rs 37.9 lakh on top — more than 3x your investment, entirely from compounding.