What is compound interest and how is it calculated? Compound interest is awesome - Generate Wealth!

Compound interest is the interest calculated on the initial principle and also on the accumulated interest from previous periods. That's why it's called compound interest because it compounds on itself and gets bigger over time. Here's a super simple and super unrealistic example to illustrate the difference between simple and compound interest. Two people invested $100 with a business tycoon. The first one negotiated a 100% simple interest return on their money. The other one negotiated a 100% compound interest return on their money. At the end of the first year, they each earned $100. Now they each had $200. That's a great deal if you can get it. So they decided to keep going with their investment. At the end of the second year, the person who simple interest earned another $100. 100% interest multiplied by the original $100 in principle. At the end of the second year, the person who negotiated compound interest earned an additional $200. 100% interest multiplied by the total amount in the account. $200, which is $100 of the original principle plus $100 from interest earned last year. Simple interest does not count earned interest when calculating future returns. Compound interest counts all the money in the account and doesn't care that some of it was earned as past interest. Most investments are calculated with compound interest. Most loans are calculated with simple interest. Thanks for watching. If you found this video interesting, please like it and subscribe to our channel so we can continue making videos like these. Thanks for watching.