# What is the formula for compound interest?

Compound interest is the interest paid on both principal and interest, compounded in regular intervals.

## Answer: The formula of compound interest is CI = P(1 + (r/n) )^{nt }- P

Let's understand the terms involved in the compound interest formula.

**Explanation:**

Compound interest for the first year is similar to the simple interest but the difference occurs from the second year onwards.

From the second year, the interest is also calculated on the interest of the first year along with the interest on principal amount.

Hence, it is also called as interest on interest.

The formula for Compound interest is:

**Compound Interest = Amount - Principal**

Thus, we seet that

**CI = P(1 + (r/n) ) ^{nt }- P**

Where, 'P' is the principal amount,

'r' is the rate of interest

't' is the time

'n' represents the number of times the interest is compounded per unit time