What is Compound Interest?

What is ‘Compound Interest’

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as “interest on interest,” and will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding; the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period. Compound interest is also known as compounding.


A bank offers 5% compound interest calculated on half-yearly basis. A customer deposits Rs. 1600 each on 1st January and 1st July of a year. At the end of the year, the amount he would have gained by way of interest is:

A. Rs. 120

B. Rs. 121

C. Rs. 122

D. Rs. 123




2 thoughts on “What is Compound Interest?”

  1. Hᥱlⅼo there, just became aware of your Ƅlog throuցh Google, and
    found that it iѕ truly informative.

    I’ll be grateful if yyou continue this in future. A lot of people wiⅼl be benefited
    from yоur writing. Cheers!

Leave a Reply

Your email address will not be published. Required fields are marked *