compound interest

American  

noun

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

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compound interest British  

noun

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

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compound interest Scientific  

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

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compound interest Cultural  

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.

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Etymology

Origin of compound interest

First recorded in 1650–60

Example Sentences

“Matches for low-income workers significantly alter savings behavior. A small amount of financial assistance can encourage those previously excluded from wealth building to start saving, allowing the power of compound interest to work.”

From MarketWatch • Feb. 25, 2026

Investing, for them, is a way to regain some certainty—with the magic of compound interest.

From The Wall Street Journal • Feb. 15, 2026

The power of compound interest has the potential to generate returns and boost wealth over a long horizon.

From Barron's • Dec. 4, 2025

“The problem is that the sponge grows exponentially, like compound interest in a bank,” Swain said.

From Los Angeles Times • Jan. 9, 2025

But Benji politely nodded and listened and kept most of his attention on his dad, who smiled every time Mr. Rubin said annuity, or compound interest, or low-risk.

From "Millionaires for the Month" by Stacey McAnulty