Compound Interest is money you can earn when you investing the principal over a period of time. It adds any interest rate on the interest earned on the principal amount.

Let us understand it from a simple example:

Assume that you invest Rs100 for 2 year @ 10% interest. Then Compound Interest would be

Today = Rs100

After 1 year = P*R*T/100

= 100*1*10/100= Rs10

Total Amount after 1 year = Rs100+ Rs10 = Rs110

Interest between 1-2 years = P’*R*T = 110*1*10/100 = Rs11

Therefore, Total amount after 2 years = Rs110+Rs11 = Rs121

Mathematically

Amount= P(1+r/100)^t where P is principal, r is the rate of interest and t is investment tenure.

Compound Interest = Amount-Principal