What is compound interest?

Compound interest is similar to simple interest except the interest is added on at the end of each period of time e,g, a year and the next bit of interest is worked out on the original amount + the interest added on

e.g. I invest £100 for 3 years at 10% compound interest.

At the end of the first year I have the £100 I originally invested plus the £10 interest I earnt on it - £110.00

At the end of the second year I have the £110 I had at the beginning of the year plus another 10% or £11.00 so end up with £121.00 at the end of the second year

At the end of the third year I have £121.00 plus the 10% earnt this year so I end up with 121 plus £12.10 or £133.10.

I hope that helps

Jane McKenzie

Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest