What is Compound Interest?
Compound interest is the addition of interest and the principal sum of a loan or deposit, as one can say “interest on interest”. It’s the calculated interest on the initial principal with the addition of the accumulated interest of the previous periods. You are not only getting interest on initial investment but also getting interest on top of interest! Your wealth is growing exponentially through compound interest. It’s like putting your money to work.
It can be contrasted with simple interest, where previously calculated interest is not added in the principal amount hence no compounding. The simple annual interest rate is also known as the nominal interest rate.

How to calculate compound interest
Total accumulated value including principal amount (P) and the compound interests over years (T) is given by the below formula.

Total value = P x (1+r / n)nT

r is a nominal annual interest rate
n is compounding frequency
T is time the interest is applied