Compound Interest — Interest That Grows on Itself
Learn Compound Interest through a simple snowball analogy, master the amount formula for annual, half-yearly and quarterly compounding, see a worked example, use the CI-minus-SI shortcuts, and test yourself with a quiz for SSC-CGL.
By the PadhoDost Team · 📖 7 min read · Updated 4 August 2026
Part of SSC CGL & Banking prep🧠 A rolling snowball
Push a small snowball down a hill. As it rolls it picks up snow, gets bigger, and because it is bigger it picks up even more snow next. Compound Interest works the same way: each year's interest is added to your money, and the next year you earn interest on that bigger total too. Interest starts earning interest — that is 'compounding'.
The difference from Simple Interest is exactly this: in SI the interest is always on the original principal, but in CI the interest is added back so the principal keeps growing. That is why savings, loans, and EMIs in real life almost always use compound interest.
The Main Formulas
| Compounding | Rate used | Number of times (power) |
|---|---|---|
| Yearly (annual) | R/100 | n = years |
| Half-yearly | R/200 (half the rate) | 2 x years |
| Quarterly | R/400 (quarter the rate) | 4 x years |
How to solve a CI problem
- 1Identify P, R, and the time.
- 2Check how often it compounds — yearly, half-yearly, or quarterly.
- 3Adjust the rate and the power to match that frequency.
- 4Compute the Amount with A = P x (1 + rate)^power.
- 5For CI alone, subtract: CI = A - P.
📝 Worked example
Q: Find the Compound Interest on ₹10,000 at 10% per annum for 2 years, compounded annually.
Given: P = ₹10,000, R = 10, n = 2.
A = 10000 x (1 + 10/100)^2 = 10000 x (1.1)^2
(1.1)^2 = 1.21, so A = 10000 x 1.21 = ₹12,100
CI = A - P = 12100 - 10000 = ₹2,100
Compare: Simple Interest would be 10000 x 10 x 2 / 100 = ₹2,000.
CI is ₹100 more than SI — that extra ₹100 is the interest earned on the first year's interest.
The CI minus SI Shortcut
Remember these
- ✓CI adds each period's interest back, so you earn interest on interest.
- ✓Amount A = P x (1 + R/100)^n; CI = A - P.
- ✓Half-yearly: use R/2 and double the power. Quarterly: use R/4 and quadruple it.
- ✓CI is always greater than SI for the same P, R, and time (beyond 1 year).
- ✓2-year gap: CI - SI = P x (R/100)^2.
⚡ Quick check
What is the difference between the Compound Interest and Simple Interest on ₹5,000 for 2 years at 10% per annum?
Ready to test yourself? 🎯
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