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

See Examples For:

compound interest

Saving the money would be helped by the magic of compound interest.

From BBC ● Jul. 26, 2026

“To be able to have compound interest compound over long periods,” Leibowitz told me, “is a kind of historical miracle.”

From The Wall Street Journal ● May 19, 2026

This inflation builds on the already elevated prices from the past five years, similar to how compound interest builds on principal.

From MarketWatch ● May 13, 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

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