Compound interest, sometimes referred to as compounding interest, is a financial concept that pertains to the interest earned on a loan or deposit. Unlike simple interest, which is calculated solely on the initial principal amount, compound interest takes into account both the initial principal and the accumulated interest from previous periods. As time progresses, the interest is calculated not only on the original sum but also on the interest that has accrued over time, resulting in exponential growth of the total amount. Compound interest plays a crucial role in various financial transactions, including savings accounts, investments, and loans, and it can significantly impact the growth or cost of money over time.
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