What is compound interest?
Compound interest is interest earned on both your principal and the previously earned interest. This creates a snowball effect over time.
Definition
Unlike simple interest, compound interest lets returns generate their own returns, increasing growth as tenure becomes longer.
Example
If you invest ₹1,00,000 at 10% annual return, your value becomes ₹1,10,000 after year 1 and ₹1,21,000 after year 2 (assuming annual compounding and no withdrawals).
Use case
Use compound interest to estimate how savings or investments can grow over the long term with reinvestment.