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## What is the Actual meaning of Compound Interest?

Compound interest is a type of interest in which the interest is added to the Principal amount of a loan. Compound interest varies from the simple interest, where simple interest is the interest taken for the term or duration or period of the loan. But coming to the Compound interest, it is a compounding interest i.e. interest on interest.

## What is the Difference between the Compound Interest & Simple Interest?

Simple Interest is based on the Principal amount and calculated according to the remaining balance of the Principal Amount. Simple interest does not include any compounding and it can be applied over a term or time duration or a period of time whereas coming to the Compound Interest, in which the interest is added to the Principal amount, it includes compounding i.e. interest on interest.

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#### How to Calculate Compound Interest With Formula Explained with Examples:

## How to Use a Compound Interest Calculator online in a Simple way?

Here we are giving some simple tips to use the Compound Interest Calculator in a simple and easy way. To use the Compound Interest Calculator, first you have to know or decide the Principal amount, the second thing is the Interest rate, the third thing is the number of times the interest added and the fourth and last one is the term or duration or the number of years. By using these four things you can simply calculate the Annual Compound Interest.

## Simple Procedure for Using a Compound Interest Calculator Online:

- Enter the Principal amount in the first field.
- Enter the rate of interest in the second field.
- Enter the number of times the interest is added in the third field.
- Enter the number of years or term or duration or period in the fourth field.
- After entering all the above-mentioned details click the Calculate Button.
- Compound Interest Calculator will show you the Annual Compound Interest.

## How to Calculate Compound Interest Manually?

Before the existence of the Compound Interest Calculator, there is a formula by using that formula people used to calculate the compound interest. By using this below mentioned formula any person can calculate the annual compound interest.

## Compound Interest Formula:

‘P = P (1 + r/n)

In the above formula, where

**P’** – Compounding Interest.

**P** – Is Principal amount.

**r**– Nominal annual interest rate.

**n **– Stands for Compounding frequency.

**t **– Number of years for which the interest is applied.

## Simple Procedure for Calculating the Compound Interest Manually:

- Substitute the Principal amount in ‘
**P’**. - Substitute the nominal interest rate in ‘
**r’**. - Substitute the compounding frequency in ‘
**n’**. - Substitute the total number of years in
**‘t’**. - After substituting the Principal amount in ‘
**P’**, the nominal interest rate in ‘**r’**and compounding frequency in ‘**n’**and the total number of years in**‘t’**in the above formula, you can get the**P’**is Periodic Compounding.

## Total Compound Interest Formula:

‘P = P + I

I = P (1 + r/n) – P

In the above formula, where

**P’** – Compounding Interest.

**P** – Is Principal amount.

**r**– Nominal annual interest rate.

**n **– Stands for Compounding frequency.

**t **– Number of years for which the interest is applied.

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