![]() That’s pretty simple.īut, in the second year, the interest won’t be counted on the initial principal of $1000. ![]() And the bank provides a compound interest of 3% every year.Īfter one year, your balance will be $1030. Suppose, you deposited $1000 to a bank for 2 years. But, with compound interest, after a separately compound term, the interest accumulated over that span is added to the principal so that the following estimation of interest incorporates the actual principal plus the previously acquired interest. And also interest is not added to the principal. In Simple Interest, interest is only estimated from the principal. It increases our savings after a limited period. When we think about compound interest, we consider it as gaining money. Basically, it is one of those popular financial terms. Compound interest means earning or paying interest on interest.
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