Compound Interest

Click menu icon to view glossary terms.

Compound interest is the addition of interest to the principal amount of a loan or investment, which results in interest earned on principal plus the accumulated interest from the previous period. Compound interest increases the balance of the loan or investment exponentially, as opposed to simple interest.

An example of a deposit that accumulates interest using compound interest is a savings account at a bank. When someone deposits an amount into a savings account in a bank, that account will start to grow based on interest. The bank can determine the period in which the interest will accrue. Usually, this is on a  daily, monthly or quarterly basis. 

For more financial terminology resources and types of loans, return to the glossary home page.

Scroll to Top

Choose Your State