compound interest
compound interest
compound interest
com′pound in′terest
n.
| Noun | 1. | compound interest - interest calculated on both the principal and the accrued interest |
n.
Compound Interest
Compound Interest
interest computed not only on an original sum but also on the interest accruing to the original sum over a preceding period.
Compound Interest
Compound Interest
Interest generated by the sum of the principal and any accrued interest.
Interest is normally compounded on a daily, quarterly, or yearly basis. The more often interest is compounded, the larger the principal will grow and the greater the interest the new principal will produce.
compound interest
n. payment of interest upon principal and previously accumulated interest which increases the amount paid for money use above just simple interest. Thus, it can increase more rapidly if compounded daily, monthly or quarterly. The genius physicist Albert Einstein called compound interest man's "greatest invention." Most lenders agree. (See: interest, promissory note)
COMPOUND INTEREST. Interest allowed upon interest; for example, when a sum of money due for interest, is added to the principal, and then bears interest. This is not, in general, allowed. See Interest for money.
compound interest
Compound interest
Compound Interest
compound interest
Compound interest.
When the interest you earn on an investment is added to form the new base on which future interest accumulates, it is compound interest.
For example, say you earn 5% compound interest on $100 every year for five years. You'll have $105 after one year, $110.25 after two years, $115.76 after three years, and $127.63 after five years.
Without compounding, you earn simple interest, and your investment doesn't grow as quickly. For example, if you earned 5% simple interest on $100 for five years, you would have $125. A larger base or a higher rate provide even more pronounced differences.
Compound interest earnings are reported as annual percentage yield (APY), though the compounding can occur annually, monthly, or daily.
compound interest
see INTEREST.compound interest
the INTEREST on a LOAN that is based not only on the original amount of the loan but the amount of the loan plus previous accumulated interest. This means that, over time, interest charges grow exponentially; for example, a £100 loan earning compound interest at 10% per annum would accumulate to £110 at the end of the first year and £121 at the end of the second year, etc., based on the formula:compound sum = principal (1 + interest rate") number of periods that is, 121 = 100 (1 + 0.1)2. Compare SIMPLE INTEREST.
compound interest
The process of charging, or earning, interest on interest. Interest accrued in prior periods is added to the principal,and then interest in the current period is calculated on the total.
Example: If you saved $100 per month, starting at age 25, at an earnings rate of 5 percent per annum, you would have $144,959 by age 65, only $48,000 of which would be money you contributed. To perform your own calculations, use the following formula to create a Microsoft Excel spreadsheet:
FV(Interest Rate, Number of Years, Savings per Year)*-1
For Interest Rate enter the cell address where you will note the interest rate you expect to earn; for Number of Years enter the cell address where you enter the number of years you expect to save the same amount each year; and for Savings per Year enter the cell address where you will enter the amount you expect to save each year.
compound interest
- noun
Words related to compound interest
noun interest calculated on both the principal and the accrued interest
Related Words
- interest