In which government schemes one gets the benefit of compound interest? Why is it called the eighth wonder of the world..

Interest is available from bank accounts to FDs and other savings schemes. Among these, one is simple interest and the other is compound interest, you must have often heard about it. But, do you know what is compounding interest, and in which government savings schemes compound interest is available?

Money grows faster in compounding interest because it also gives interest on the income from interest. Let us tell you how compound interest is calculated and in which popular government schemes compounding interest is available.

What is compound interest?

In compounding interest, interest is also available on the income earned from interest. Compounding interest is calculated not only on the principal but also on the interest earned for the previous periods. In such a situation, the amount of interest gets added to the principal amount and interest is calculated on that entire amount.

Suppose, you invested Rs 1 lakh in a savings scheme, which gives simple interest at the rate of 7 percent every year, then every year you will get Rs 7000 interest on the principal amount.

If you have invested this amount of Rs 1 lakh in a saving scheme where compound interest is given at the rate of 7 percent, then in the first year you will get Rs 7000 as interest income, and this money will be added to your principal and next year you will get interest at the rate of 7 percent on 107000.

In this way, due to compound interest, interest gets added to the principal every year and interest is calculated on that amount, hence money grows faster in a scheme with compounding interest.

Compounding interest is available in these government schemes.

Compounding interest is available in many government saving schemes in the country. These include the Public Provident Fund (PPF), Sukanya Samriddhi Yojana, National Savings Certificate (NSC), Senior Citizen Savings Schemes and some bank FDs also offer compounding interest.

The interest rate on the Public Provident Fund (PPF) is 7.1 percent per annum and this scheme offers compounding interest as well as tax exemption under section 80c.

The interest rate in the National Savings Certificate Scheme is 7.7% per annum. However, tax is deducted on interest in this scheme, as well as the benefit of tax deduction is also available on investment.

Sukanya Samriddhi Yojana offers compound interest at the rate of 8.2 percent per annum. Investment in this scheme is also completely tax free.

Senior Citizen Savings Scheme offers compounding interest at the rate of 8.2 percent per annum, as well as the benefit of tax deduction under 80c.

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