Let us understand more about this, and the calculations of compound interest in the below content. over successive time periods of 1 year, but would give a compound interest of $100, $210, $331, $464.10.
The power of compounding is that it is always greater than or equal to the other methods like simple interest.Īn amount of $1000 invested over a period of time at 10% rate would give a simple interest of $100, $100, $100. Compound interest is the method of calculation of interest used for all financial and business transactions across the world.
Again, the interest for the next time period is calculated on the accumulated principal value. The interest accumulated on a principal over a period of time is also added to the principal and becomes the new principal amount for the next time period. Compound interest is an interest calculated on the principal and the existing interest together over a given time period.
