The magic of compounding
In this lesson you'll learn:
- Understand what compounding means
- See why starting to save early matters more than how much you save
Here's a question: would you rather have ₹1,00,000 today, or ₹1 today that doubles every day for a month?
Most people would say ₹1,00,000. But the ₹1 that doubles every day becomes more than ₹50 crore after 30 days! That's the power of compounding.
What is compounding?
Compounding is when the interest you earn also earns interest. Your money makes more money, and then that extra money makes even more money, and on and on.
Try it yourself
The little tool below shows how compounding works. Drag the sliders and watch how a small amount of money turns into something much bigger over time.
See compounding in action
Money you save earns interest. That interest then earns its own interest. Try changing the numbers to see how it grows.
After 20 years
₹4,661
Interest earned
₹3,661
Money multiplied by
4.7×
The early-bird trick
The earlier you start saving, the more time compounding has to do its magic. A child who saves ₹100 a month from age 10 will usually end up with much more than someone who saves ₹500 a month starting at age 30 — because time matters more than amount.
Quick check
1. What does "compounding" mean?
2. Which matters more for compounding?
3. Two friends save the same amount of money. One starts at age 10, the other at age 30. Who usually ends up with more by age 60?
Checkpoint locked
Score at least 60% on the quiz above to unlock the next lesson.