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Encouragement and advice regarding investment often dive into the idea of making your money work for you. Experts may also suggest that your money can grow over a long period if you ensure consistency in the right decisions. A lot of this is centred around the concept of compound interest. If you want to ensure that your money grows the best it can while you work hard for it, understanding the concept of compound interest is crucial.
Unlike simple interest, which only pays you on your original deposit, compound interest rewards your patience by calculating interest on both the principal and the interest earned so far. This snowball effect can turn even modest savings into impressive amounts, especially when paired with monthly interest credit, like that offered by IDFC FIRST Bank on their savings accounts.
Let’s break down the concept of compound interest, how it works, and how you can make the most of it, whether you're saving, investing, or just curious about growing your money.
Compound interest is interest earned on interest. Compounding occurs when you earn returns on the principal amount and the interest previously earned. In an account where you are earning simple interest, you only get interest on the principal amount.
For example, IDFC FIRST Bank offers competitive interest rates with monthly interest credits on savings accounts, where your interest is calculated daily and compounded monthly, thus helping your savings grow faster, automatically.
Compound interest is an important concept when it comes to savings and investments. While online calculators are available, it helps to know how it is calculated.
The compound interest formula is:
A = P (1 + (r/n)) ^ nt
Where,
A = final amount you will receive
P = the initial principal amount
r = interest rate
n = number of times interest is applied
t = time passed (in years)
Let’s look at how this works with the following example:
Suppose Ajay opened a bank account with an institution that offered a monthly compound interest of 4%. For convenience, let us assume Ajay is not depositing or withdrawing any money from this account for some time.
After the first month, Ajay's bank account was credited with ₹1200 on the current balance of ₹30,000. In the next month, he earned an interest amount of ₹1248. This interest was not drawn on the principal amount (₹30,000) but on the interest plus the principal amount, which was ₹31,200. In the third month, he earned an interest amount of ₹1297, and so on.
On an account offering a simple interest rate, Ajay would have earned only ₹1200 each month.
With IDFC FIRST Bank’s monthly compounding structure, customers like Ajay can enjoy interest on interest, credited monthly, making it ideal for both short-term liquidity and long-term compounding benefits.
At IDFC FIRST Bank, you can seamlessly invest in mutual funds—whether it's equity, tax-saving, or hybrid funds—directly through your account dashboard. Use our SIP calculator to forecast how compound interest can help you reach your financial goals faster.
Compounding allows you to earn interest from the principal amount and the interest previously generated on this amount. The interest earned becomes a part of the principal, on which the future interest will be drawn.
Compound interest is not just a financial concept—it's your money’s best friend when given enough time.
The rate of interest differs from bank to bank. The compounding rate of interest may also depend upon the type of bank account that you have. IDFC FIRST Bank offers monthly interest pay outs on savings accounts. With IDFC FIRST Bank’s Savings Account, not only do you get competitive interest rates—but the interest is credited monthly, which means faster compounding. This feature alone can significantly improve your effective yield compared to traditional quarterly-payout accounts.
Take advantage of compounding with IDFC FIRST Bank Savings Accounts
Now that you understand how compound interest grows your money, the next step is to apply it with the right savings account. IDFC FIRST Bank offers monthly interest credit on all savings accounts, helping your money compound more frequently than quarterly-interest accounts.
Here’s how different savings account variants support your financial goals:
₹10,000 Average Monthly Balance (AMB) variant:
₹25,000 Average Monthly Balance (AMB) variant:
Compound interest is a solid foundation of ensuring your money multiplies rather than simply adding up. It is a mindset for long-term financial growth. Whether you're saving for an emergency fund, planning a future expense, or investing for wealth creation, compounding helps your money grow steadily.
With IDFC FIRST Bank, you can start benefiting from compounding today. Their savings accounts offer monthly interest credit, meaning your interest is calculated daily and credited monthly. So, you earn interest on interest, faster.
If you want to go a step further, explore mutual fund investments directly through IDFC FIRST Bank’s platform. Use their SIP calculator to see how compounding can help you reach your financial goals with ease.
Start your journey of growing wealth with the power of compounding—open a savings account or explore mutual funds with IDFC FIRST Bank today. Apply now!