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

Here’s the secret: More than 90% of the money she earned is from compound interest.

From MarketWatch

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

From Barron's

Children will have lessons in budgets, money management, mortgages and compound interest.

From BBC

He explained that the universe expanded like the capital with compound interest.

From BBC

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

From Los Angeles Times