Compound Interest

Definition

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It's often called "interest on interest" and is a key concept for both saving and debt.

Example

If you invest $1,000 with a 10% annual compound interest, after the first year you'll have $1,100. In the second year, you earn 10% on $1,100, not just the original $1,000. So you earn $110, bringing your total to $1,210. This accelerates your savings over time.