magic of compounding , compound interest

When we deposit some amount of money to any bank, or any financial institution they give some percentage of their profit. Otherwise who is going to deposit his money if return is less when no interest is assumed. Why return is always less (discounted) that is another subject of discussion.

Now, interest payment are of various types. We will discuss simple interest and compound interest.

In simple interest ,  no interest is paid on the interest earned

Suppose if I deposit Rs. 100 .00 for an interest rate of 2 % per year rate . At the end of the year  I will get Rs. 102.00 .
Again for the  next year I will again get Rs. 102.00 , as Rs. 100 is principal .Interest rate is 2% per year.

Another system is (compounding) , at the second year , interest will be calculated on Rs. 102 .00

It is said that  compounding is the eighth. wonder. Power of compounding is enormous.


Any one can  calculate like below

Rs. 100.00 will become after 1 year  Rs. 102.00
Rs. 102.00 will become after 1 year  Rs. 104.00
Rs. 104.00 will become after 1 year  Rs. 106.00
next year                                                    Rs. 108.00

like on  it will increase. But in comparison to simple interest   interest gain is huge if year after after interest is added to principal

amount	year	interest rate	interest	total amount
100	start
100	1	2%	2	102
102	2	2%	2.04	104.04
104.04	3	2%	2.0808	106.1208
106.1208	4	2%	2.122416	108.243216
108.24322	5	2%	2.164864	110.4080803
110.40808	6	2%	2.208162	112.6162419
112.61624	7	2%	2.252325	114.8685668
114.86857	8	2%	2.297371	117.1659381
117.16594	9	2%	2.343319	119.5092569
119.50926	10	2%	2.390185	121.899442
121.89944	11	2%	2.437989	124.3374308
124.33743	12	2%	2.486749	126.8241795

compare this with simple rate of interest and with long time  frame