Compound Interest Formula

Investing at early stage in your life and getting compound interest rate on your investment makes you Millionare.

Simple Interest :  Simple Interest is the basic flat interest that is charged on the principal amount only.
                              Formula for calculating interest rate is
                              Simple Interest = P x I x N
                              P= Principal amount invested
                              I = Interest rate
                             N = Number of period invested
Example : If Deepak invested Rs 50,000 for 3 years at 10% simple annual interest rate than
                Simple interest rate = P x I x N = Rs 50,000 x 0.1 x 3 = Rs 15000
It means Deepak earned total interest of Rs 15000 for periods of 3 years.

Compound Interest : Interest earned not only on an original investment, but on its accrued earning as well.
                                 
Example : Suppose Deepak invested Rs 50,000 for 3 years at 10% at compounded interest rate,
Interest for Year 1 = P1 = P x I x N = 50,000 x 0.1 x 1 = 5000
( total = 55,000 )
Interest for Year 2 = P2 = (P1) x I x N = ( 55,000 ) x 0.1 x 1 = 5500
( total = 60,500 )
Interest for Year 3 = P3 = (P2) x I x N = ( 60,500 ) x 0.1 x 1 = 6050
( total 66,550 )
Total interest earned by Deepak over the period of 3 years through compound interest rate
     5000 + 5500 + 6050 = 16,550

Now you can compare this to 15,000 earned over the same number of years using simple interest rate.