Compound interest is calculated by adding interest earned at regular intervals to the principal amount. This increased principal amount is used to calculate interest in subsequent periods. There are three common compounding periods: annual, semi-annual, and quarterly. More frequent compounding results in higher total interest earned over time compared to less frequent compounding. An example shows how to calculate compound interest annually and semi-annually on a principal of ₹2000 at 10% interest over 2 years. Compounding semi-annually results in ₹11 more total interest earned compared to annual compounding.