Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on principal plus interest. It is the result of reinvesting interest, or adding it to the loaned capital rather than paying it out, or requiring payment from the borrower, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics and is contrasted with simple interest, where previously accumulated interest is not added to the principal amount of the current period, so there is no compounding. Here are some key points about compound interest:
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Interest on interest: Compound interest is the interest you earn on both the money youve saved and the interest you earn.
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Compounding periods: Compounding periods are the time intervals between when interest is added to the account. Interest can be compounded annually, semi-annually, quarterly, monthly, daily, continuously, or on any other basis.
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Growth: Compound interest means your principal gets larger over time and will generate larger and larger interest payments. The difference between simple and compound interest can be massive.
Compound interest is a basic concept for savers and investors, and it allows savings to grow faster over time.
