# Compound Interest Formula | Simple Interest Vs Compound Interest

Simple Interest – It is interest amount calculated on base principal amount. E.g. You have borrowed Rs. 1000 @12% p.a. interest rate for 3 years and you need to pay interest every year. Then you will be paying interest (1000*12% = 120) every year. Simple Interest Calculation

Compound interest –  Compound interest, or ‘interest on interest’, is calculated with the compound interest formula. E.g. You have borrowed Rs. 1000 @12% p.a. interest rate and you need to pay total amount after 3 years. Then you will be paying interest on interest amount also. Compound Interest Calculation Formula Calculation
• Compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
• Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one.
• Interest can be compounded on any given frequency schedule, from continuous to daily to annually.
• When calculating compound interest, the number of compounding periods makes a significant difference.