Savings
Compound Interest and the Rule of 72, Explained Simply
The compound interest formula, simple vs compound over 30 years, how often interest is added, and the Rule of 72 for doubling time.
By Team Vind · Updated · 5 min read
Compound interest is interest on interest: each year's earnings are added to your money and start earning too. Over a few years the difference from simple interest is small. Over 20 or 30 years it's enormous. And a centuries-old shortcut, the Rule of 72, tells you in seconds how fast your money doubles.
The formula
Amount = P × (1 + r ÷ n)^(n × t)
P is the starting amount, r the yearly rate as a decimal, n the number of times interest is added each year, and t the years. ₹1,00,000 at 8% compounded yearly for 10 years: 1,00,000 × 1.0810 = ₹2,15,892.
Simple vs compound interest
| Years | Simple interest at 8% | Compound interest at 8% | Difference |
|---|---|---|---|
| 1 | ₹1,08,000 | ₹1,08,000 | ₹0 |
| 5 | ₹1,40,000 | ₹1,46,933 | ₹6,933 |
| 10 | ₹1,80,000 | ₹2,15,892 | ₹35,892 |
| 20 | ₹2,60,000 | ₹4,66,096 | ₹2,06,096 |
| 30 | ₹3,40,000 | ₹10,06,266 | ₹6,66,266 |
In 30 years, simple interest turns ₹1,00,000 into ₹3,40,000; compounding turns it into ₹10,06,266. Time does most of the work, which is why starting early matters more than investing large amounts later.
Try it: Compound Interest Calculator
Compound Interest
- Invested₹1,00,000(45%)
- Interest₹1,20,804(55%)
Year by year
| Year | Invested so far | Balance | Interest so far |
|---|---|---|---|
| 1 | ₹1,00,000 | ₹1,08,243 | ₹8,243 |
| 2 | ₹1,00,000 | ₹1,17,166 | ₹17,166 |
| 3 | ₹1,00,000 | ₹1,26,824 | ₹26,824 |
| 4 | ₹1,00,000 | ₹1,37,279 | ₹37,279 |
| 5 | ₹1,00,000 | ₹1,48,595 | ₹48,595 |
| 6 | ₹1,00,000 | ₹1,60,844 | ₹60,844 |
| 7 | ₹1,00,000 | ₹1,74,102 | ₹74,102 |
| 8 | ₹1,00,000 | ₹1,88,454 | ₹88,454 |
| 9 | ₹1,00,000 | ₹2,03,989 | ₹1,03,989 |
| 10 | ₹1,00,000 | ₹2,20,804 | ₹1,20,804 |
How often interest is added
The more often interest is compounded, the slightly more you earn. ₹1,00,000 at 8% for 10 years:
| Compounding | Amount after 10 years |
|---|---|
| Yearly | ₹2,15,892 |
| Half-yearly | ₹2,19,112 |
| Quarterly | ₹2,20,804 |
| Monthly | ₹2,21,964 |
The Rule of 72
Years to double ≈ 72 ÷ interest rate
At 8%, money doubles in about 72 ÷ 8 = 9 years. Work backwards too: to double in 6 years you need about 72 ÷ 6 = 12% a year.
| Rate | Rule of 72 | Exact (yearly compounding) |
|---|---|---|
| 4% | 18 years | 17.7 years |
| 6% | 12 years | 11.9 years |
| 7.1% | 10.1 years | 10.1 years |
| 8% | 9 years | 9 years |
| 10% | 7.2 years | 7.3 years |
| 12% | 6 years | 6.1 years |
| 15% | 4.8 years | 5 years |
The rule is most accurate between about 6% and 10%. For tripling, use 114 instead of 72; for four times, 144.
Investing monthly rather than once? Read SIP vs lumpsum, or try the SIP calculator.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is earned only on the original amount. Compound interest is also earned on interest already added, so it grows faster over time.
How long does money take to double at 7%?
About 72 ÷ 7 = 10.3 years by the Rule of 72; exactly 10.24 years with yearly compounding.
Is monthly or yearly compounding better?
Monthly gives slightly more for the same rate, because interest starts earning sooner. The difference is small compared with the rate and the time invested.
Why 72 and not 70?
72 divides evenly by many common rates (2, 3, 4, 6, 8, 9, 12) and is close to accurate around 8%. The 'rule of 70' is a little more accurate for low rates.
These results are estimates for planning only, not financial, investment or tax advice. Rates and rules change, and your bank, fund house or employer may calculate slightly differently. Check with them or a qualified adviser before you decide.
Sources
Last reviewed: 10 October 2026