Interest due on both the original principal balance and any unpaid interest

Savings accounts often apply compound interest to the money you deposit. You earn interest on top of interest that you have already gained. So, if you put $100 in your savings account at 6% annual interest you will earn $6.00 at the end of the year. The next year you will collect interest on the total amount, $106.00.

Year 1

		Money in your savings account		$100
		Annual interest rate	x	.06
		Your total earnings in interest	=	$6.00

Year 2

		Total money in your savings account: $100+$6		$106
		Annual interest rate	x	.06
		Compound interest years 1 & 2	=	$6.36