Compound Interest — The Eighth Wonder of the World
Albert Einstein reportedly called compound interest the eighth wonder. Here is why with real examples.
Simple vs Compound Interest on ₹1 Lakh
| Years | Simple (8%) | Compound (8%) | Difference |
|---|---|---|---|
| 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 gives 3.4x. Compound interest gives 10x! The gap widens dramatically over time.
Rule of 72
Divide 72 by the interest rate to know how many years it takes to double your money. At 12% returns: 72/12 = 6 years to double.