Compound interest is interest earned on principal plus previously earned interest. It is more powerful than simple interest because interest accumulat
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Why is compound interest higher than simple interest?
Compound interest is earned on both principal and accumulated interest from previous periods. Simple interest is earned only on the principal. As interest accumulates, earning interest on that interest increases the total amount exponentially.
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What does 'compounding' mean in everyday banking?
When interest is 'compounded', it means the earned interest is added to the principal, and the next interest calculation includes both. This happens daily, monthly, quarterly, or annually depending on the account.
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How does the Rule of 72 work and when can it be used?
The Rule of 72 (n = 72/r) estimates doubling time without logarithms. It works for moderate interest rates (5-10%) and gives a quick approximation. For very high or very low rates, logarithmic calculation is more accurate.
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