Compound Interest: Back to basics

Main concept of compound interest is that interest paid adds to and becomes part of the principal that accrues interest during the next period. Thus principal keeps increasing continuously with time and interest accrued on it also increases.

Formula:
             A = P * (1+ r/n) ^ (t*n)

             where,
                      P = Principal amount
                      r  = annual rate of interest (in decimal)
                      n = number of times interest is compounded per year
                      t = time in years
                     A = amount at the end of t years

Example:
There are many investment instruments that returns compound interest. One of them is PPF wherein interest rate is 8% compounded yearly. An amount of Rs. 20000 invested in PPF for 15 years which return:                 
                     = 20000(1+.08/1)^(15*1)
                     = 63443