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Compound Interest
Definition
Compound interest is the interest on a deposit or loan calculated based on both the initial principal and the accumulated interest from previous periods. It is essentially 'interest on interest' and makes a sum grow at a faster rate than simple interest.
Example
"If you invest $1,000 at 5% annual interest compounded yearly, you will have $1,050 after year one. In year two, you earn 5% on $1,050, resulting in $1,102.50."