Math Made Favourable

  Understanding Compound Interest: When Money Grows on Itself. In my last post, I explained the concept of simple interest. Simple interest rewards you only on your original amount (the principal ). But in real life - with most bank savings, loans, and investments, the interest itself earns more interest over time. That’s called Compound Interest. What is Compound Interest? Compound Interest (C.I.) is the interest calculated on both the principal and the accumulated interest from previous periods. In other words, your money earns interest on your previous interest . Formula for Compound Interest The total amount after compounding is given by: A = P ( 1 + R 100 ) T A = P \left(1 + \frac{R}{100}\right)^T Where: A = Total Amount after T  years P = Principal (original amount) R  = Rate of interest per annum (in %) T = Time (in years) Then, Compound Interest (C.I.) = A − P \text Worked Examples Example 1 Find the compound interest on ...