Finance · Glossary
What is Compound Interest?
Quick definition
Interest calculated on the initial principal AND on the accumulated interest from previous periods. The engine of long-term wealth.
Full explanation
Compound interest is interest calculated on the initial principal and on the accumulated interest of previous periods. It is the mechanism that makes long-term investing powerful — your returns start earning their own returns. The Rule of 72 estimates doubling time: years to double ≈ 72 / annual rate. At 7% annual return, money doubles every ~10 years. Over 30 years, $10,000 grows to ~$76,000 (vs. $31,000 with simple interest). Compound interest applies to debt too: a credit card balance at 24% APR compounds monthly, meaning unpaid interest gets charged interest. The frequency of compounding (daily, monthly, annually) changes the effective rate.
Related calculators
Calculators that use or explain Compound Interest.
Related terms
More from Finance
APR (Annual Percentage Rate)
The yearly cost of a loan, expressed as a percentage, including most fees. Used when borrowing money.
APY (Annual Percentage Yield)
The yearly return on a deposit or investment, including the effect of compounding. Used when saving money.
Simple Interest
Interest calculated only on the original principal, not on accumulated interest. Used in short-term and consumer loans.
Principal
The original sum of money borrowed or invested, not including interest. The base on which interest is calculated.
Amortization
Spreading loan payments over time so each payment covers both principal and interest, with the loan fully paid off at the end.
Equity
The current market value of an asset minus any outstanding debt against it. What you actually OWN of the asset.
Last reviewed: June 15, 2026 • Category: Finance