What is compounding interest? How compounding interest works?
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics. This is the explanation given in internet. Now, let us understand it more deeply. Compound interest has both principal amount and interest for an year earned interest in the next period. The value of money here is the foundation of the compound interest. More than one compounding period in a year can be there. Compounding is the process in the overall value of an investment will rise as the interest on the investment and with each passing day it's principal interest earned will be rising. With the help of compounding interest one can witness the increase in the overall value of their investment. Let's take an exampl...