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.
INVESTOPEDIA EXPLAINS '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
Interest calculated on the initial principal and also on the ... 
Principal
1. The amount borrowed or the amount still owed on a loan, separate ... 
Stated Annual Interest Rate
The return on an investment that is expressed as a peryear percentage, ... 
Effective Annual Interest Rate
An investment's annual rate of interest when compounding occurs ... 
Continuous Compounding
The process of earning interest on top of interest. The interest ... 
Compounding
The ability of an asset to generate earnings, which are then ...

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