Compound interest is the interest calculated on the initial principal and the accumulated interest from previous periods. In other words, you earn interest on interest. This leads to faster growth compared to simple interest, especially over longer periods.

To calculate the compound interest, first we need to calculate the total amount using the formula:

Where:

• A is the final amount
• P is the principal (initial amount)
• R is the annual interest rate
• n is the number of times interest is compounded per year
• t is the number of years

Now, we can get the compound interest:

Where I is the compound interest.

Note: The compounding frequency (n) can vary:

• Annually: n = 1
• Semi-annually: n = 2
• Quarterly: n = 4
• Monthly: n = 12
• Weekly: n = 12
• Daily: n = 365 (or 366 for leap years)