What is 'Compound Interest'
Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as “interest on interest,” and will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding; 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% semiannually over the same time period. Compound interest is also known as compounding.
BREAKING DOWN 'Compound Interest'
The formula for calculating compound interest is:
Compound Interest = Total amount of Principal and Interest in future (or Future Value) less Principal amount at present (or Present Value)
= [P (1 + i)^{n}] – P
= P [(1 + i)^{n }– 1]
(Where P = Principal, i = nominal annual interest rate in percentage terms, and n = number of compounding periods.)
If the number of compounding periods is more than once a year, "i" and "n" must be adjusted accordingly. The "i" must be divided by the number of compounding periods per year, and "n" is the number of compounding periods per year times the loan or deposit’s maturity period in years.
For example:
 The compound interest on $10,000 compounded annually at 10% (i = 10%) for 10 years (n = 10) would be = $25,937.42  $10,000 = $15,937.42
 The amount of compound interest on $10,000 compounded semiannually at 5% (i = 5%) for 10 years (n = 20) would be = $26,532.98  $10,000 = $16,532.98
 The amount of compound interest on $10,000 compounded monthly at 10% (i = 0.833%) for 10 years (n = 120) would be = $27,070.41  $10,000 = $17,070.41
Compound interest can significantly boost investment returns over the long term. While a $100,000 deposit that receives 5% simple interest would earn $50,000 in interest over 10 years, compound interest of 5% on $10,000 would amount to $62,889.46 over the same period.
While the magic of compounding has led to the apocryphal story of Albert Einstein supposedly calling it the eighth wonder of the world and/or man’s greatest invention, compounding can also work against consumers who have loans that carry very high interest rates, such as creditcard debt. A creditcard balance of $20,000 carried at an interest rate of 20% (compounded monthly) would result in total compound interest of $4,388 over one year or about $365 per month.

Periodic Interest Rate
The interest rate charged on a loan or realized on an investment ... 
Compound Return
The rate of return, usually expressed as a percentage, that represents ... 
Compounding
The ability of an asset to generate earnings, which are then ... 
Stated Annual Interest Rate
The return on an investment that is expressed as a peryear percentage, ... 
Front Fee
The option premium paid by an investor upon the initial purchase ... 
Interest Rate
The amount charged, expressed as a percentage of principal, by ...

Investing Basics
Learn Simple And Compound Interest
Interest is defined as the cost of borrowing money, and depending on how it is calculated, can be classified as simple interest or compound interest. 
Investing
How does Compound Interest Work?
A quick way to understand the impact of compound interest is to ask yourself if you’d rather receive $100,000 a day for a month, or start with a penny on day one and double it every day for those ... 
Investing
The Effective Annual Interest Rate
The effective annual interest rate is a way of restating the annual interest rate so that it takes into account the effects of compounding. 
Investing Basics
Understanding Compound Interest
Compound interest is often called one of the most powerful concepts in finance. Find out what it is and how it can work for you. 
Investing Basics
Overcoming Compounding's Dark Side
Understanding how money is made and lost over time can help you improve your returns. 
Personal Finance
Dissecting the Simple Interest Formula
Simple interest ignores the effect of compounding: it's only calculated on the principal amount. This makes it easier to calculate than compound interest. 
Credit & Loans
All Your Questions About Loan Interest Rates
If you think interest rates don’t really matter  think again. Interest rates have a huge impact on your finances. 
Forex
Compound Annual Growth Rate (CAGR)
The compound annual growth rate is an important tool for measuring investment performance and comparing it across asset classes. Discover how it is calculated and how it can inform your investment ... 
Personal Finance
Simple Interest Loans: Do They Exist?
Yes, they do. Here is what they are – and how to use them to your advantage. 
Fundamental Analysis
How To Calculate Your Investment Return
How much are your investments actually returning? Find out why the method of calculation matters.

What formula can I use to calculate interest on interest?
Find out more about compounding interest, what it measures and how to calculate the amount of compound interest accrued using ... Read Answer >> 
How does the compound interest concept vary between a basic savings account and an ...
I understand compound interest as it relates to a basic savings account. If you get 5% interest on $1000 each year, it will ... Read Answer >> 
How do mutual funds compound interest?
Learn how mutual funds can grow wealth over time through the magic of compound interest by reinvesting dividends back into ... Read Answer >> 
What is the difference between compounding interest and simple interest?
Learn about simple interest and compound interest, how to calculate the two types of interest and the main difference between ... Read Answer >> 
How do I use the rule of 72 to calculate continuous compounding?
Find out why the rule of 72 does not accurately reflect the growth caused by continuous compounding, and which number can ... Read Answer >> 
Where can I find a good compound interest calculator free on the Internet?
Understand compound interest calculations and learn where you can find a good, free online compound interest calculator to ... Read Answer >>