Compound Interest – Your friend indeed

When the battle between the bulls and the bears settles down as the dust settles one realizes that the only way to get rich is getting there slowly. And no matter what people tell you the only true friend you have in this long journey is — compound interest. Takes you back a few years to school with this doesn’t it?

The formulae below should jog your memory a bit –

Formulae for Compound Interest

A running gag in Chennai Express was a joke that Deepika Padukone’s character used to crack at SRK’s expense — “Don’t underestimate the power of the common halwai”. Taking a leaf from a movie that cracks me up no end is — “Don’t underestimate the power of compound interest”.

Consider a simple example of an individual were to invest Rs 100,000 in two separate schemes both offering an interest rate of 8% per annum with the slight difference that one of the schemes offers that the interest be compounded annually. The chart below shows the total amount payable to the individual over a twenty (20) year period.

Simple Interest Vs Compound Interest

Hopefully this would help you appreciate the power of compound interest and inform your future investment and saving decisions.

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