Compound interest is interest calculated on the initial amount (principal) and also on accumulated interest from previous periods. It's basically "interest on interest", which makes the value grow faster than simple interest.

Compound Interest Formula

M = C \times (1 + i)^t

C: Initial capital.

i: Interest rate (in decimal, e.g. 5% = 0.05).

t: Time (in periods).

Quick Example

Starting capital: R$ 1,000

Interest rate: 5% per month (0.05)

Time: 3 months

Calculation:

1. First month:

2. Second month:

3. Third month:

Result: R$ 1,157.63

This shows how the amount grows faster with compound interest.