Definition

Noun: - Interest calculated on both the initial principal and the accumulated interest from previous periods: Compound interest is a method of calculating interest where the interest earned is added to the principal sum, so that subsequent interest calculations are based on the new, larger total. This leads to growth at an accelerating rate over time.

Usage Examples

• Noun:
  • The power of compound interest can significantly increase your savings over decades.
  • The bank account offers an annual compound interest rate of 5%.
  • He explained that with compound interest, your money grows faster because you earn "interest on interest."

Advanced Usage

• "To compound" (verb): While the target term is the noun "compound interest," the related verb "to compound" is used in financial contexts to describe the process of calculating or adding interest.
  • The interest is compounded monthly.
• "Compounding" (gerund/noun): Refers to the process itself.
  • The effect of compounding is most powerful over long time horizons.

Variants and Related Words

• Simple interest (n): Interest calculated only on the principal amount, not on accumulated interest. This is the direct contrast to compound interest.
  • The loan uses simple interest, so the total cost is easier to calculate.
• Principal (n): The original sum of money invested or loaned, upon which interest is calculated.
• Accrued interest (n): Interest that has been earned but not yet paid or added to the principal.

Synonyms

• Interest on interest: A descriptive phrase for compound interest.
• Cumulative interest: Can sometimes be used similarly, emphasizing the accumulating nature.

Related Phrases

• "The magic of compound interest": A common phrase highlighting its powerful long-term growth effect, often attributed to Albert Einstein.
  • Financial advisors often talk about the magic of compound interest for retirement planning.
• "Compound annual growth rate (CAGR)": A business and investment metric that smooths returns by assuming compound growth over a period.
  • The company's revenue had a CAGR of 8% over five years.

Noun

1. interest calculated on both the principal and the accrued interest