Compound interest is the interest imposed on a loan or deposit amount. It is the most commonly used concept in our daily existence. The compound interest for an amount depends on both Principal and interest gained over periods. This is the main difference between compound and simple interest. Suppose we observe our bank statements, we generally notice that some interest is credited to our account every year. This interest varies with each year for the same principal amount. We can see that interest increases for successive years. Hence, we can conclude that the interest charged by the bank is not simple interest; this interest is known as compound interest or CI. In this article, you will learn what is compound interest, the formula and the derivation to calculate compound interest when compounded annually, half-yearly, quarterly, etc. Also, one can understand why the return on compound interest is more than the return on simple interest through the examples given based on real-life applications of compound interest here.

1. Compound Interest
Vaishika G

2. What is interest?
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Interest refers to the cost of borrowing money or the
reward for lending money. Typically, banks charge
interest on money borrowed on top of the expected
repayment of the principal. At the same time, banks
also pay interest on depositors’ funds in savings and
investment accounts. They do so to entice more
deposits, which they use for on-lending to
customers, charging a higher interest rate than they
pay depositors.

3. Different types of interest
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4. Amount of interest over the years
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Compound Interest
Compound interest is the interest calculated on the principal and the
interest accumulated over the previous period. It is different from simple
interest, where interest is not added to the principal while calculating the interest
during the next period. In Mathematics, compound interest is usually denoted by
C.I.

6. • Where,
• A = amount
• P = principal
• r = rate of interest
• n = number of times interest is
compounded per year
• t = time (in years)
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Formula

7. Formula
This formula is also called periodic compounding
formula.
Here,
• A represents the new principal sum or the total amount of
money after compounding period
• P represents the original amount or initial amount
• r is the annual interest rate
• n represents the compounding frequency or the number of
times interest is compounded in a year
• t represents the number of years

8. Derivation
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11. thank you
Vaishika G