interest paid on both the principal and on accrued interest.
interest calculated on both the principal and its accrued interest Compare simple interest
compound interest
Interest computed on the original principal plus any accrued interest. Thus if 5% is the rate of interest per year and the principal is $1000, the compound amount after one year will be $1050, after two years it will be $1050 × 0.05 = $1102.50, after three years it will be $1102.50 × 0.05 = $1157.63, and so forth. Mathematically, if P is the original principal and I the rate of interest expressed as a decimal, the compound amount at the end of the nth year will be P(1 + I)n. The growth of the compound amount is exponential and not linear. Compare simple interest.

Interest that is added not only to the principal of a loan or savings account but also to the interest already added to the loan or account; interest paid on interest.


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