compound interest

noun

1. interest paid on both the principal and on accrued interest.

compound interest

noun

1. interest calculated on both the principal and its accrued interest Compare simple interest

compound interest

1. Interest computed on the original principal plus any accrued interest. Thus if 5% is the rate of interest per year and the principal is $1000, the compound amount after one year will be $1050, after two years it will be $1050 × 0.05 = $1102.50, after three years it will be $1102.50 × 0.05 = $1157.63, and so forth. Mathematically, if P is the original principal and I the rate of interest expressed as a decimal, the compound amount at the end of the n th year will be P (1 + I ) ⁿ. The growth of the compound amount is exponential and not linear.
2. Compare simple interest

compound interest

1. Interest that is added not only to the principal of a loan or savings account but also to the interest already added to the loan or account; interest paid on interest.

Word History and Origins

Origin of compound interest¹

First recorded in 1650–60

Example Sentences

Save for lots of years, and that lump sum keeps building under what is known as compound interest, external.

From BBC

Conversations about credit, investments, and loans, for instance, intersect with lessons on compound interest, matrices, and exponential equations.

From Seattle Times

Investing those extra dollars from tax breaks means couples have more money that can potentially grow and enjoy the benefits of compound interest.

From Seattle Times

Save for lots of years, and that lump sum keeps building under what is known as compound interest.

From BBC

“Let compound interest work for you, and let the money transform your life and how it’ll look 20, 30 years from now,” Cocco says.

From Seattle Times