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# Compound interest

Interest paid on previously earned interest as well as on the principal. The New York Times Financial Glossary

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The interest amount earned on the original principal and on the accumulated interest. Compounding annually means that there is only one period each year in which interest is calculated. For example, if £100 is deposited with annually calculated interest at 10 percent, after one year there will be £110. Where simple interest always calculates the rate from the initial amount invested (giving £120
after two years, £130 after three etc.), compound interest calculates the 10 percent from the previous year's total (giving £121 after two years and £133.10 after three). The extra £3.10 is the compound interest.

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compound interest UK US noun [U]
FINANCE interest that is calculated on both the amount of money invested or borrowed and on the interest that has been added to it: »

Thanks to the power of compound interest, every €1 you invest in your 20s is worth €2 in your 30s and €3 in your 40s.

Compare SIMPLE INTEREST(Cf. ↑simple interest)

### Look at other dictionaries:

• compound interest — see interest 5 Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. compound interest …   Law dictionary

• compound interest — Interest computed by applying the simple rate of interest to calculate interest on principal plus interest on successive increments of interest earned in prior periods. American Banker Glossary interest paid on previously earned interest as well… …   Financial and business terms

• Compound interest — Compound Com pound, a. [OE. compouned, p. p. of compounen. See {Compound}, v. t.] Composed of two or more elements, ingredients, parts; produced by the union of several ingredients, parts, or things; composite; as, a compound word. [1913 Webster] …   The Collaborative International Dictionary of English

• Compound interest — Interest In ter*est, n. [OF. interest, F. int[ e]r[^e]t, fr. L. interest it interests, is of interest, fr. interesse to be between, to be difference, to be importance; inter between + esse to be; cf. LL. interesse usury. See {Essence}.] [1913… …   The Collaborative International Dictionary of English

• Compound Interest — Interest that accrues on the initial principal and the accumulated interest of a principal deposit, loan or debt. Compounding of interest allows a principal amount to grow at a faster rate than simple interest, which is calculated as a percentage …   Investment dictionary

• compound interest — n [U] ↑interest that is calculated on both the sum of money lent or borrowed and on the unpaid interest already earned or charged →↑simple interest …   Dictionary of contemporary English

• compound interest — n. interest computed on the sum of the principal and the accrued interest: cf. SIMPLE INTEREST …   English World dictionary

• compound interest — noun uncount interest that is based both on an amount of money that someone has borrowed or saved and on the interest that has been added to it …   Usage of the words and phrases in modern English

• Compound interest — The effect of earning 20% annual interest on an initial \$1,000 investment at various compounding frequencies Compound interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also… …   Wikipedia

• compound interest — noun interest calculated on both the principal and the accrued interest • Hypernyms: ↑interest * * * noun : interest paid or computed on the combined sum of the original principal of a loan and interest accrued and payable at the end of each… …   Useful english dictionary