What is 'Compound Interest'?

Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Sharper Insight. Smarter Investing. Manage Preferences TERM OF THE DAY Compound Interest Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Thought to have originated in 17th-century Italy, compound interest can be thought of as "interest on interest," and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding; the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period. Breaking it Down: Compound interest is calculated by multiplying the principal amount by one plus the annual interest rate raised to... Read More Related to "Compound Interest" Learn Simple and Compound Interest Interest is defined as the cost of borrowing money, and depending on how it is calculated, it can be classified as simple interest or compound interest. Read More Continuous Compound Interest Different frequency in compound interest results in different returns. Check out how continuous compounding accelerates your return. Read More How do I calculate compound interest using Excel? Learn how to calculate compound interest using three different techniques in Microsoft Excel. Read More Related Definitions Stated Annual Interest Rate The return on an investment that is expressed as a per-year percentage, and that does not account for compounding that occurs throughout the year. Read More Principal Principal is the amount borrowed on a loan or put into an investment. Read More Compound Annual Growth Rate - CAGR The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year. Read More Simple Interest A quick method of calculating the interest charge on a loan. Read More You are currently subscribed as: mondemand.forex@blogger.com Unsubscribe  |  Manage Subscriptions Investopedia, LLC, A Division of IAC. 114 West 41st St, floor 8, New York NY 10036 Copyright © 2018, Investopedia, LLC. All Rights Reserved Follow Us: