What is compound interest?

2 years ago


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Brant Barton

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Jane M Profile Picture
Jane M Verified Sherpa Tutor ✓

Experienced Maths Tutor working with KS3, GCSE. functional skills

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

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Hassan Nadeem

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

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