Banking Notes / Quantitative Aptitude / Chapter 10
Chapter 10 of 26

Compound Interest (CI)

Annual and half-yearly compounding, the CI-SI difference shortcut, and effective-rate problems that build directly on the SI chapter.

📖 ~9 min read 🏦 Banking Quantitative Aptitude

Introduction

Compound Interest is calculated on the principal plus previously earned interest, so it grows faster than SI over time. Bank exams often pair CI with SI in the same question, testing whether you know both formulas and their difference shortcuts.

Core Formulas

SituationFormula
Amount (annual compounding)A = P(1 + R/100)ⁿ
Half-yearly compoundingA = P(1 + (R/2)/100)²ⁿ (rate halved, time doubled)
CIA − P
CI − SI for 2 yearsP × (R/100)²
CI − SI for 3 yearsP × R² × (300 + R) / 100³
Q. Find the CI on ₹10,000 for 2 years at 10% per annum, compounded annually.
A = 10000 × (1.1)² = 10000 × 1.21 = ₹12,100. CI = 12100 − 10000 = ₹2,100.
Q. The difference between CI and SI on a sum for 2 years at 5% per annum is ₹150. Find the sum.
Using CI − SI (2 years) = P × (R/100)²: 150 = P × (5/100)² = P × 0.0025. P = 150 / 0.0025 = ₹60,000.
⚠️ Key Insight: For 2-year CI-SI difference problems, the shortcut P×(R/100)² is much faster than calculating CI and SI separately and subtracting — memorise it, since it's a very common bank prelims question.
💡 Exam Tip: When compounding is half-yearly, always halve the rate and double the number of compounding periods before applying the amount formula — forgetting this is the single most common CI error.
✅ Practice Focus: Amount and CI direct calculation · CI-SI difference shortcuts for 2 and 3 years · Half-yearly and quarterly compounding conversion.

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