Interest is a basic percentage charged on the principal or the initial amount of the loan. Interest is interest that is paid on both the principal and the previous interest of the loan so your interest is reinvested leading to higher interest in the future future that grows faster.
Compound interest can be calculated using the formula:
A = P(1 + r/n)^(nt)
Where:
A = the future value of the investment/loan, including interest
P = the principal amount (initial investment/loan)
r = the annual interest rate (in decimal form, so 4% would be input as 0.04)
n = the number of times that interest is compounded per year
t = the number of years the money is invested/borrowed for
Compound interest is important because it allows your money to grow at a faster rate compared to simple interest. By reinvesting the interest earned, you can accelerate the growth of your investment over time. This can be particularly beneficial for long-term investments or loans, where the effects of compound interest are more pronounced.