How it works
With compounding, each period's interest is added to the balance, so the next period earns interest on a larger amount. The more often interest compounds, the higher the effective annual rate.
This is a mathematical illustration with a fixed rate and no tax. Actual returns depend on the product's terms, tax on interest and, for market-linked investments, performance that isn't guaranteed.
A = P × (1 + r/m)^(m × t)
Effective annual rate = (1 + r/m)^m − 1Worked example
₹1,00,000 at 7% a year compounded quarterly for 5 years grows to 1,00,000 × (1 + 0.07/4)^20 = ₹1,41,478, earning ₹41,478 of interest. The effective annual rate is 7.19%.