# Compound interest

## Compound interest,

### Definition of Compound interest:

1. Interest computed on the principal amount to which interest earned to-date has been added. Where compound interest is applied, the investment grows exponentially and not linearly as in the case of simple interest. Formula: Principal x {(Annual interest rate ÷ 100) + 1}^number of years. For example, \$1,000 at an annual compound interest rate of 10 percent will, in 5 years, be: 1000 x {(10 ÷ 100) + 1}^5 = \$1,6105.51.

2. Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Thought to have originated in 17th century Italy, compound interest can be thought of as "interest on interest," and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.

3. The rate at which compound interest accrues depends on the frequency of compounding, such that the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on \$100 compounded at 10% annually will be lower than that on \$100 compounded at 5% semi-annually over the same time period. Since the interest-on-interest effect can generate increasingly positive returns based on the initial principal amount, it has sometimes been referred to as the "miracle of compound interest.".

### How to use Compound interest in a sentence?

1. Mary put a few hundred dollars in a money market fund as a child and because of compound interest it was worth much more to her then the few thousand she invested later in life .
2. Interest can be compounded on any given frequency schedule, from continuous to daily to annually.
3. Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
4. Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one.
5. His principal investment wasnt yet paying off big money, but Jordan knew it would take a little time before the compound interest kicked in, at which point hed see a sharp rise in what he was getting back.
6. I agreed to a loan and before I knew it I owed much more in interest than I thought I would because my loan used compound interest .
7. When calculating compound interest, the number of compounding periods makes a significant difference.

Meaning of Compound interest & Compound interest Definition