DEFINITION of 'Discrete Compounding'
Discrete compounding refers to the method by which interest is calculated and added to the principal at certain set points in time. For example, interest may be compounded daily, weekly, monthly or even yearly. Discrete compounding is the opposite of continuous compounding, which uses a formula to compute interest as if it were being constantly calculated and added to principal.
BREAKING DOWN 'Discrete Compounding'
The frequency with which interest is compounded has a slight effect on an investor's effective annual yield. For example, suppose you deposit $100 in an account which earns 5% interest annually. If the bank compounds interest annually, you will have $105 at the end of the year. If, on the other hand, the bank compounds interest daily, you will have $105.13 at the end of the year.

Compound Interest
Compound Interest is interest calculated on the initial principal ... 
Continuous Compounding
The process of earning interest on top of interest. The interest ... 
Periodic Interest Rate
The interest rate charged on a loan or realized on an investment ... 
Effective Annual Interest Rate
Effective Annual Interest Rate is an investment's annual rate ... 
Biotech Compound
A chemical entity that forms the starting point in the drug development ... 
Compound Return
The rate of return, usually expressed as a percentage, that represents ...

Investing
How does Compound Interest Work?
A quick way to understand the impact of compound interest is to ask yourself if youâ€™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 ... 
Bonds & Fixed Income
Accelerating Returns With Continuous Compounding
Investopedia explains the natural log and exponential functions used to calculate this value. 
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. 
Savings
How Interest Rates Work on Savings Accounts
Here's what you need to know to grow your rainyday fund. 
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. 
Personal Finance
Crafty Compounding
It is easier to become a millionaire now that at any time before. While you won' be buying islands, it is still a goal worth shooting for. 
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. 
Economics
Explaining Interest
Interest is the price charged to borrow money, and is typically expressed as a percentage of the principal, or the amount loaned. 
Professionals
The Effect Of Compounding
Learn all about this important function that Einstein thought was the greatest mathematical discovery ever. 
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.

What is the difference between continuous compounding and discrete compounding?
Learn to differentiate between and calculate the continuous and discrete compounding formulas for interestgenerating investments ... Read Answer >> 
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 often is interest compounded?
Understand what compound interest is and how the compounding of interest applies to the benefit of investors or creditors, ... 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 >> 
Other than my savings account, what other types of holdings compound my interest?
Understand the benefits of compounding interest, and learn the types of investments that offer compounding in addition to ... 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 >>