human
I need help understanding compound interest. Can you please explain it to me?
assistant
Compound interest is when interest is calculated on the initial principal of a deposit or loan, as well as any accumulated interest from prior periods. This means that the amount of interest you earn in a period of time is based on the total amount of money you have available in the account, rather than just the principal. For example, if you put $100 in an account with 5% compound interest, then after the first period, you'll have earned $5 in interest. In the second period, the total amount of money you have available to earn interest will be $105 ($100 principal plus the $5 in interest), so the interest rate will be 5% on the total of $105. This will continue as more interest is accumulated with each passing period.