When you deposit money in a bank, the bank usually adds interest once a year. But some banks add interest twice a year (half-yearly) or four times a year (quarterly). Each time interest is added, it becomes part of the new principal, and the next interest is calculated on this larger amount. This is why more frequent compounding gives you more interest
💡Key Rules
For half-yearly CI: The rate is divided by 2, and time is multiplied by 2.
For quarterly CI: The rate is divided by 4, and time is multiplied by 4
🔑Formula
A = P × (1 + R/(100×n))^(t×n)
Where:
- A = Amount after interest
- P = Principal (original money)
- R = Annual rate of interest (%)
- n = Number of times compounded per year (2 for half-yearly, 4 for quarterly)
- t = Time in years
- CI = A − P
📊
Exam Patterns
What examiners ask — read before attempting PYQs
SSC CGL typically asks: Compare CI for different compounding periods, find CI amount, or calculate effective rate.
Shortcut/Trick:
For half-yearly: Use R/2 and 2t. For quarterly: Use R/4 and 4t. Always remember the rate gets divided and time gets multiplied by the same number.
✏️
Worked Example
Solve this step-by-step before moving on
1
Step 1
Identify n = 4 (quarterly)
2
Step 2
Apply formula: A = 8000 × (1 + 20/(100×4))^(1×4)
3
Step 3
A = 8000 × (1 + 5/100)^4
4
Step 4
A = 8000 × (1.05)^4
5
Step 5
A = 8000 × 1.2155 = 9724
6
Step 6
CI = 9724 − 8000 = Rs 1724
Common Mistake:
Students forget to divide the rate by the compounding frequency. They use the full annual rate instead of R/2 or R/4, leading to wrong answers. Always reduce the rate first.
🔑 Key Points
Half-yearly CI: Divide rate by 2, multiply time by 2
Quarterly CI: Divide rate by 4, multiply time by 4
Formula: A = P(1 + R/(100n))^(tn) where n = compounding frequency
More frequent compounding = higher final amount
CI = Amount − Principal (always calculate both separately)
In 1 year, quarterly compounding gives more interest than half-yearly
📌 Exam Facts
For half-yearly compounding, the effective rate formula is: (1 + R/200)^2 − 1
For quarterly compounding in 1 year, total compounding periods = 4
Half-yearly means n = 2, so rate becomes R/2 for each period
Quarterly means n = 4, so rate becomes R/4 for each period
If time is 2 years with quarterly compounding, total periods = 8
Compound Interest formula with frequency: A = P(1 + r/100)^n where r is periodic rate and n is total periods
For half-yearly: 1 year = 2 periods, 2 years = 4 periods, 3 years = 6 periods
Questions Asked in Previous Exams
Real questions from SSC papers — 2015 to 2024 · Showing 4 of 13
Exam Q 12019Previous Year Pattern
A principal amount becomes ₹10,648 in 1 year at 8% per annum compound interest, compounded half-yearly. What is the principal?
Exam Q 22019Previous Year Pattern
₹12,000 is invested at 10% per annum compound interest, compounded quarterly. What is the amount after 9 months?
Exam Q 32019Previous Year Pattern
The compound interest on ₹6,400 at 12.5% per annum for 1 year, compounded half-yearly, is:
Exam Q 42019Previous Year Pattern
A sum of ₹20,000 is invested at 20% per annum compound interest, compounded quarterly. What will be the interest earned in the first quarter?
🔒
11 more questions — free with an account
Create a free account in 20 seconds to unlock all questions, answers, and explanations.