What is compound interest?

Compound interest is a method of calculation of interest where the base of interest calculation increases every year.

In this method the interest earned in the prior period is added to the base for the next calculation

For example a deposit of Rs 10,000 with a 10 per cent rate will earn Rs 1,000 in the first year.

In the second year the base becomes Rs 11,000 (10,000 + 1000 interest earned) and the earnings will be Rs 1,100.

This continues with the end result that the interest earned increases with each passing year.

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