Employees’ Provident Fund Organization (EPFO) has started processing 8.25% interest for the financial year 2025-26. It is expected that by July 15, this interest will start appearing in the EPF passbook of the employees. However, many employed people have a question in their mind that when interest is calculated every month, why is it not reflected in the account every month? Let us understand it in simple language.
Interest is added to the account not every month, but once a year.
Often people think that if 8.25% interest is received annually on EPF, then about 0.69% interest would be deposited directly into the account every month. But this assumption is not correct. Actually EPFO calculates interest on the balance in your PF account every month, but does not deposit it in your account every month. The interest earned in the entire financial year is credited to the account simultaneously after the end of the year. Therefore, when you look at the passbook in the middle of the year, no interest is visible, whereas interest keeps getting added to your money.
Understand how the calculation is done with an example.
Suppose you have Rs 5 lakh in your PF account on 1st April. You and your employer together deposit Rs 10,000 every month. In such a situation, the interest for the month of April will be Rs 5 lakh. After the new contribution is added in May, the balance will increase and now the interest will be paid on a higher amount than before.
This process continues throughout the year. With the addition of new contributions every month, the principal amount increases and interest is calculated on the same increased amount in the next month. This is the reason why your PF fund grows gradually.
There is a big benefit of compounding
If you and your employer together deposit Rs 1.2 lakh throughout the year, then the interest is calculated not just on the initial balance but on the increasing balance every month. This is the effect of compounding.
According to Balasubramaniam A, Senior Vice President, TeamLease Services, interest calculation on every new contribution starts from the month it is deposited. However, this interest appears in the account once a year, hence many people feel that they are not getting any returns on their PF in between.
EPF is still the best retirement scheme
Experts say that EPF is still one of the most reliable retirement saving options in India. The annual return of 8.25% is considered better than many traditional fixed income investment options. Apart from this, tax benefits and employer’s contribution are also available, due to which your savings grow faster. If an employee contributes to PF regularly for 25 to 30 years, then he can have a big corpus ready by the time of retirement.
Keep these things in mind
Employees should check their EPF passbook from time to time and ensure that the employer is depositing the PF on time every month. If the company delays in depositing PF, the time of receiving interest on that contribution may also be affected.
What is the most important thing?
EPF interest does not appear in your account every month, but it does not mean that your savings are not increasing. EPFO calculates interest on the increasing balance every month and deposits the interest for the entire year together in your account. Regular contributions, long-term investment and the power of compounding make EPF one of the strongest savings plans for retirement.
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