Compound interest is a method of calculating interest where the amount earned or owed is added back to the principal sum, so that from then on, interest is calculated on this new total. For students studying GCSE Maths, it's important to understand that unlike simple interest, which is only calculated on the initial amount (principal), compound interest allows the investment or loan to grow at a faster rate because you're earning or paying interest on your interest. This process of interest on interest can significantly increase amounts over time, especially if the compounding happens frequently, such as annually, monthly, or even daily.
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