The biggest misconception about EPF interest! Your PF balance grows this way, not on a monthly basis..
The Employees' Provident Fund Organisation (EPFO) has initiated the process for crediting 8.25% interest for the financial year 2025-26. It is expected that this interest will start appearing in employees' EPF passbooks by July 15. However, many salaried individuals wonder why the interest does not appear in their accounts every month, given that the calculation is done monthly. Let us understand this in simple terms.
**Interest is credited to the account once a year, not monthly**
People often assume that since EPF earns 8.25% annual interest, approximately 0.69% interest is deposited directly into the account each month. However, this notion is incorrect. In reality, while the EPFO does calculate interest on your PF account balance every month, it does not credit that amount to your account monthly. The total interest accrued over the financial year is credited to the account in a lump sum after the year ends. Consequently, the interest does not appear in the passbook mid-year, even though interest continues to accumulate on your funds.
**Understand the calculation with an example**
Suppose you have ₹5 lakh in your PF account on April 1st. You and your employer collectively deposit ₹10,000 every month. In this scenario, the interest for April will be calculated on the ₹5 lakh balance. In May, after the new contribution is added, the balance increases, and the interest is then calculated on a higher amount than before.
This process continues throughout the year. With the addition of new contributions each month, the principal amount grows, and the interest for the following month is calculated on this increased sum. This is why your PF fund grows at an accelerating pace.
**The significant benefit of compounding**
If you and your employer deposit a total of ₹1.2 lakh over the year, the interest is not calculated solely on the initial balance; instead, it is determined based on the balance as it grows each month. This is the effect of compounding. According to Balasubramanyam A.K., Senior Vice President at TeamLease Services, interest calculation on every new contribution begins in the very month it is deposited. However, since this interest reflects in the account only once a year, many people mistakenly believe they are not earning any returns on their PF in the interim.
**EPF Remains a Top Retirement Scheme**