Interest is the extra money that a bank gives you for saving or depositing your money with them. Similarly, when you borrow money, you pay interest.

**Simple interest:**

With

**Simple interest**, the interest is calculated on the same amount of money in each time period, and, therefore, the interest t earned in each**time period**is the same.**Compound Interest:**

On the other hand,

**compound interest**is calculated on the**principal**plus the**interest**for the previous period. The**principal amount**increases with every**time period**, as the**interest**payable is added to the**principal**. This means interest is not only earned on the**principal**, but also on the**interest**of the previous time periods.
So we can say that the

**compound interest**calculated is more than the**simple interest**on the same amount of money deposited.
When

**interest**is compounded, the total amount is calculated using the formula, .**Interest**is generally calculated on a yearly basis. Sometimes, it can be compounded more than once within a year. It can be

**compounded half yearly**, which means twice a year, or quarterly, which means four times a year.

The period for which

**interest**is calculated is called the**conversion period**. At the end of the**conversion period**, the**interest**is added to the**principal**to get the new**principal**.
The formula to calculate the new rate of interest with respect to the

**conversion period**is**Time period=number of years**

When

**interest**is**compounded half yearly**, the**interest rate**will be half of the annual interest rate.
The formula to calculate the new time period with respect to the conversion period is

**Time period=number of years**

When

**interest**is**compounded half yearly**, the**time period**will be doubled.
The formula for

**compound interest**can also be used in finding the growth rate of population, rate of increase of bacteria, rate of increase of land rates, etc.**Time period=number of years**

**Time period=number of years**

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