The interest generated on that money is the amount of simple interest earned. If one were to leave that money in the bank for two years, then they would receive interest on the principal and on the simple interest. This is where your interest begins to compound. The process of accumulating interest on an investment over multiple time periods is known as compounding. As a final point, interest earned on the initial principal and reinvested interest during prior periods is compound interest.
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The difference between simple and compounded interest is that in simple interest, we work with the principal ony in calculating the total interest using the formula
where p is the principal, and r is the rate and t is time
for compound interest, the interest earned above ill also earn interest upon reinvestment such that the total interest will include the interest on the principal and interst on the principals interest. thuis we use
Interest= P(1+r/100) ^ n
where n is the number of periods of reinvestment of principal and gained interests.
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