what is compound interest?

Compound interest is interest that you earn on both your original money (the principal) and on the interest that has already been added in previous periods.

Quick Scoop

Think of compound interest as “interest on interest” that makes your money grow faster over time than simple interest, which only pays interest on the original amount.

Simple picture

• You start with some principal (say 1,000 units of money).

• After a period (a year, a month, etc.), interest is added to your balance.

• Next period, interest is calculated on this new, bigger balance, not just the original principal.

• Repeat this many times and the total grows like a snowball rolling downhill: small at first, then faster and faster.

Why it matters now

In modern savings accounts, loans, and many investments, compound interest is the standard way interest is calculated. This is why starting to save or invest earlier can make a huge difference by giving your money more time to compound.

A common forum way to say it: “Compound interest is when your money starts working, and then the money your money made also starts working.”

TL;DR:
Compound interest = interest on both your starting amount and the interest that’s already been added, causing your balance to grow faster the longer you leave it alone.

Information gathered from public forums or data available on the internet and portrayed here.