Compound Interest

Compound interest refers to the process of calculating interest not only on the initial amount of money deposited or invested (the principal), but also on the accumulated interest from previous periods. In other words, with compound interest, the interest earned during each compounding period gets added to the principal, and subsequent interest calculations are based on the new, larger principal amount.

This results in exponential growth of the investment over time, as the interest itself earns interest. Compound interest can be contrasted with simple interest, where interest is only calculated on the original principal amount and doesn't include any previously earned interest.