📐 The Classical Compound Interest Formula
For a single initial principal investment without recurring additions, compound interest is expressed by the standard formula:
The Rule of 72: Doubling Your Money Cheat Sheet
| Annual Return Rate | Years to Double Money | Asset Class Example |
|---|---|---|
| 6% | ~12.0 Years | High-yield Fixed Deposits / Corporate Bonds |
| 9% | ~8.0 Years | Conservative Balanced Mutual Funds |
| 12% | ~6.0 Years | Broad Equity Index Funds (Nifty 50, S&P 500) |
| 15% | ~4.8 Years | Actively Managed Small / Mid-Cap Equity Funds |
Frequently Asked Questions
What is Compound Interest?▼
Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Thought of as 'interest on interest', it causes a sum to grow at a faster rate than simple interest.
What is the Compound Interest Formula?▼
The formula is A = P × (1 + r/n)^(n×t), where A is the final amount, P is the initial principal, r is the annual nominal interest rate in decimal, n is the number of times that interest is compounded per unit t, and t is the time the money is invested for in years.
How does the Rule of 72 work?▼
The Rule of 72 is a quick, useful mental shortcut to estimate the number of years required to double your invested money at a given annual rate of return. Simply divide 72 by the annual return rate. For example, at an 8% return rate, your money will double in approximately 72 / 8 = 9 years.
Does compounding frequency make a big difference?▼
The more frequently interest is compounded (e.g. daily vs annually), the higher the effective annual yield (APY). While daily compounding produces more total return than annual compounding on the exact same nominal rate, the biggest driver of compounding remains time and regular contributions.