What is 'Compound Interest'?

Compound interest is the numerical value that is calculated on the initial principal and the accumulated interest of previous periods of a deposit or loan. Compound interest is common on loans but is less often used with deposit accounts. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Compound Interest Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of 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. Read More » Related to "Compound Interest" Learn About Simple and Compound Interest Find out the differences between simple and compound interest. Read More » Simple Interest vs. Compound Interest: What's the Difference? Different methods in interest calculation can end up with different interest payments. Read More » SPONSORED BY TIAA Annuities: Insurance for Retirement Annuities are financial products that pay out a fixed stream of payments. Find out more about annuities and how TIAA can help you create a secure retirement. Learn More » APR vs APY: What Is APR and How It Differs from APY Learn the difference between Annual Percentage Rate and Annual Percentage Yield, how to calculate them, and why your bank hopes that you can't tell the difference. Read More » Related Definitions Simple Interest Simple interest is a quick method of calculating the interest charge on a loan. Read More » Continuous Compounding Continuous compounding is the process of calculating interest and reinvesting it into an account's balance over a theoretically infinite number of periods. Read More » Cumulative Interest Cumulative interest is the sum of all interest payments made on a loan over a certain time period. Read More » Interest-On-Interest Interest-on-interest is the interest that is earned when interest payments are reinvested. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy