Simple interest
Interest = Principal × Rate × Time ÷ 100
₹1,00,000 at 8% for 3 years: 1,00,000 × 8 × 3 ÷ 100 = ₹24,000.
Compound interest
Amount = P × (1 + r ÷ n)n × t
Here r is the annual rate as a decimal, n is the number of times interest is added per year and t is years. ₹1,00,000 at 8% compounded quarterly for 3 years grows to ₹1,26,824.
Effective annual rate
Effective rate = (1 + r ÷ n)n − 1
8% compounded quarterly is an effective 8.24% a year.
Frequently asked questions
Which earns more, simple or compound interest?
Compound interest, because interest is added to the balance and itself earns interest. The longer the period, the bigger the difference.
How do banks compound FD interest in India?
Most banks compound fixed deposits quarterly. Use the FD Calculator for exact FD maturity values.