DEFINITION of 'InterestOnInterest'
The interest that is earned upon the reinvestment of interest payments. Interestoninterest is primarily used in the context of coupon paying bonds, where all coupon payments are assumed to be reinvested at some interest rate and held until the bond matures, or when the bond is sold.
INVESTOPEDIA EXPLAINS 'InterestOnInterest'
Interestoninterest is an important consideration an investor must make when analyzing potential investments, as interestoninterest must be considered when forecasting an investment's total cash return.
For simplification, the interest rate used to calculate interestoninterest can be the bond's yield at the time the coupon payment is made.
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RELATED FAQS

How does the money from the interest on my bond get to me?
When you buy a regular coupon bond, you are entitled to a coupon, which is typically paid at regular intervals, and the face ... Read Full Answer >> 
How can I create a yield curve in Excel?
You can create a yield curve in Microsoft Excel if you are given the time to maturities of bonds and their respective yields ... Read Full Answer >> 
What are the different formations of yield curves?
There are three main different formations of yield curves: normal, inverted and flat yield curves. The yield curve describes ... Read Full Answer >> 
What is the difference between the rule of 70 and the rule of 72?
The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double. ... Read Full Answer >> 
On what basis does the sustainable growth rate fluctuate?
The main difference between a bond’s yield to maturity, or YTM, and the spot rate is that the YTM uses the same interest ... Read Full Answer >> 
What are some classes I can take to prepare for the Series 6 exam?
The riskreturn tradeoff for bonds is the increased yield investors can obtain from corporate and other types of bonds that ... Read Full Answer >>
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