In simple interest computation, interest is computed based on the invested capital over the period of time at stated interest rate.
If at given intervals over the whole term of the investment, the principal due is added to the original principal and subsequently grosses interest, the amount by which the original principal has increased by at the conclusion of the term of the investment is called compound interest. The total amount due which comprises the original principal and the compound interest is called the compound amount. Lastly, the time between successive conversions of interest into principal is called conversion period. This implies that under compound interest method, interest earns another interest.