noun

compound interest

KOM-pownd IN-truhst

Compound interest (noun) means Interest worked out not only on the original sum of money but also on the interest already added to it, so that the amount grows by a larger cash figure in each successive period. Example: “With compound interest, the balance grew faster in its final five years than in its first fifteen.”

noun

Interest worked out not only on the original sum of money but also on the interest already added to it, so that the amount grows by a larger cash figure in each successive period.

"With compound interest, the balance grew faster in its final five years than in its first fifteen."

"Credit card debt builds through compound interest, so the amount owed rises on interest already charged."

figurative The general effect by which any quantity that grows on its own accumulated total increases at an accelerating pace. Used figuratively outside finance.

"He described daily practice as compound interest for the brain."

How to Use Compound interest

Learner’s notes

In plain EnglishInterest that earns interest, so the total grows quicker and quicker.

When to use it

Standard in finance and in ordinary speech, and widely used as a metaphor for anything that builds on itself.

Memory tip

Compound here is the adjective meaning made of added parts; the stress falls on the first syllable, KOM-pownd.

Trace the full origin ↓

Easily confused with

simple interest APR APY annual return

Common pairings

compound interest formula compounded annually the power of compound interest compounding period

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With _____, the balance grew faster in its final five years than in its first fifteen.

Etymology

From compound, meaning combined or added together, plus interest, the charge or payment for the use of money; so named because each period's interest is added to the sum on which the next period's interest is worked out.

Origin: English

Synonyms

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compounding compounded interest compounding effect snowball effect

Antonyms

simple interest

Related Words

combination

Rhymes for compound interest

Everest interest

See all rhymes for compound interest →

Frequently Asked Questions

What is the difference between compound interest and simple interest?

Simple interest is calculated only on the original amount, so the same figure is added every period. Compound interest is calculated on the original amount plus everything already added, so the figure added grows each period. Over short spans the two are close; over long ones they diverge sharply.

What does compounded monthly or annually mean?

It states how often the interest is added to the balance and so starts earning interest itself. Interest compounded monthly is added twelve times a year, and annual compounding once. For the same stated rate, more frequent compounding produces a slightly larger total.

Does compound interest work against a borrower as well?

Yes. The mechanism is neutral about direction. On savings it means interest is earned on interest; on a debt where unpaid interest is added to the balance it means interest is charged on interest, and the amount owed climbs faster the longer it goes unpaid.

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