Compound interest is interest calculated on both the original amount and the interest that’s already been added to it, so growth accelerates over time rather than staying flat.
With simple interest, you earn interest only on the original principal amount every period. With compound interest, each period's interest gets added to the principal, and future interest is calculated on that larger, growing total.
₹10,000 at 10% simple interest earns ₹1,000 every year, forever, totaling ₹20,000 after 10 years. The same ₹10,000 at 10% compound interest (compounded annually) grows to roughly ₹25,937 after 10 years, because each year's interest is calculated on an increasingly larger balance.
Compound interest works powerfully in your favor when you're saving or investing over long periods — the earlier you start, the more time compounding has to work. It also works against you on debt, like credit cards, where unpaid interest compounds and can grow a balance quickly if left unpaid.
Last reviewed: September 2026