What is compound interest?
An example of an AI chatbot conversation about understanding compound interest.
Can you explain what compound interest is?
Sure! Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
How does it differ from simple interest?
Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on the principal plus any interest that has already been added.
Can you give me an example of how it works?
Of course! If you invest $1,000 at an annual interest rate of 5%, after one year, you'd have $1,050. In the second year, you'd earn interest on $1,050, not just the original $1,000.
What are the benefits of compound interest?
The main benefit is that it allows your money to grow faster over time, as you earn interest on both your initial investment and the interest that accumulates.
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