Compound interest differs from simple interest because compound interest is calculated on:

1. Under simple interest the base never moves; every year earns interest on the original sum. 2. In practice the interest paid or charged is never simple. 3. The interest is calculated on the amount of the previous year. 4. This is known as interest compounded, or compound interest. 5. Because the base grows each year, the yearly interest also grows, which is why a passbook shows a rising figure. _Source: syllabus Maths, Ch 7 'Comparing Quantities', S7.4 Compound Interest_