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 from previous periods on 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 Interest is defined as the cost of borrowing money or the rate paid on a deposit to an investor. Find out the differences between simple and compound interest. Read More » APR vs APY: What APY Is and How It Differs from APR 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 » SPONSORED BY INVESCO The Complete Guide to ETFs ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. Learn More » Ways to Be Mortgage-Free Faster Getting rid of this debt faster has bigger benefits than you might think. Read More » Related Definitions Time Value of Money The time value of money is the idea that money you have now is worth more than the same amount in the future due to its potential earning capacity. Read More » Compound Annual Growth Rate Compound annual growth rate (CAGR) is the rate of return that would be required for an investment to grow from its beginning balance to its ending one. Read More » Accrue To accrue means to accumulate over time, and is most commonly used when referring to the interest, income, or expenses of an individual or business. Read More » Amortization Amortization is an accounting technique used to periodically lower the book value of a loan or intangible asset over a set period of time. Read More » CONNECT WITH INVESTOPEDIA Email sent to: geezers.mail@gmail.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