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

The math of compound interest means that reliably earning just a few extra percentage points on retained cash makes a big difference over the years.

From The Wall Street Journal • Mar. 31, 2026

Taking money out lowers your starting balance and reduces the amount your accounts can earn through investment returns, which means you give up potential growth from compound interest.

From MarketWatch • Jan. 14, 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