What is "compound interest"

Compound \Com"pound\,

1. [OE. compouned, p. p. of compounen. See Compound, v. t.] Composed of two or more elements, ingredients, parts; produced by the union of several ingredients, parts, or things; composite; as, a compound word.

   Compound substances are made up of two or more simple substances.
   --I. Watts.

   Compound addition, subtraction, multiplication, division (Arith.), the addition, subtraction, etc., of compound numbers.

   Compound crystal (Crystallog.), a twin crystal, or one seeming to be made up of two or more crystals combined according to regular laws of composition.

   Compound engine (Mech.), a form of steam engine in which the steam that has been used in a high-pressure cylinder is made to do further service in a larger low-pressure cylinder, sometimes in several larger cylinders, successively.

   Compound ether. (Chem.) See under Ether.

   Compound flower (Bot.), a flower head resembling a single flower, but really composed of several florets inclosed in a common calyxlike involucre, as the sunflower or dandelion.

   Compound fraction. (Math.) See Fraction.

   Compound fracture. See Fracture.

   Compound householder, a householder who compounds or arranges with his landlord that his rates shall be included in his rents. [Eng.]

   Compound interest. See Interest.

   Compound larceny. (Law) See Larceny.

   Compound leaf (Bot.), a leaf having two or more separate blades or leaflets on a common leafstalk.

   Compound microscope. See Microscope.

   Compound motion. See Motion.

   Compound number (Math.), one constructed according to a varying scale of denomination; as, 3 cwt., 1 qr., 5 l

2. ; -- called also denominate number.

   Compound pier (Arch.), a clustered column.

   Compound quantity (Alg.), a quantity composed of two or more simple quantities or terms, connected by the sign + (plus) or - (minus). Thus, a + b - c, and bb - b, are compound quantities.

   Compound radical. (Chem.) See Radical.

   Compound ratio (Math.), the product of two or more ratios; thus ab:cd is a ratio compounded of the simple ratios a:c and b:d.

   Compound rest (Mech.), the tool carriage of an engine lathe.

   Compound screw (Mech.), a screw having on the same axis two or more screws with different pitch (a differential screw), or running in different directions (a right and left screw).

   Compound time (Mus.), that in which two or more simple measures are combined in one; as, 6-8 time is the joining of two measures of 3-8 time.

   Compound word, a word composed of two or more words; specifically, two or more words joined together by a hyphen.

Interest \In"ter*est\, n. [OF. interest, F. int['e]r[^e]t, fr. L. interest it interests, is of interest, fr. interesse to be between, to be difference, to be importance; inter between + esse to be; cf. LL. interesse usury. See Essence.]

1. Excitement of feeling, whether pleasant or painful, accompanying special attention to some object; concern; a desire to learn more about a topic or engage often in an activity.

   Note: Interest expresses mental excitement of various kinds and degrees. It may be intellectual, or sympathetic and emotional, or merely personal; as, an interest in philosophical research; an interest in human suffering; the interest which an avaricious man takes in money getting.

   So much interest have I in thy sorrow.
   --Shak.

2. (Finance, Commerce) Participation in advantage, profit, and responsibility; share; portion; part; as, an interest in a brewery; he has parted with his interest in the stocks.

3. Advantage, personal or general; good, regarded as a selfish benefit; profit; benefit.

   Divisions hinder the common interest and public good.
   --Sir W. Temple.

   When interest calls of all her sneaking train.
   --Pope.

4. (Finance) A fee paid for the use of money; a fee paid for a loan; -- usually reckoned as a percentage; as, interest at five per cent per annum on ten thousand dollars.

   They have told their money, and let out Their coin upon large interest.
   --Shak.

5. Any excess of advantage over and above an exact equivalent for what is given or rendered.

   You shall have your desires with interest.
   --Shak.

6. The persons interested in any particular business or measure, taken collectively; as, the iron interest; the cotton interest.

   Compound interest, interest, not only on the original principal, but also on unpaid interest from the time it fell due.

   Simple interest, interest on the principal sum without interest on overdue interest.

n. (context banking finance English) Interest, as on a loan or a bank account, that is calculated on the total on the principal plus accumulated unpaid interest.

n. interest calculated on both the principal and the accrued interest

The addition of interest to the principal sum of a loan or deposit is called compounding. Compound interest is interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously-accumulated interest. Compound interest is standard in finance and economics.

Compound interest may be contrasted with simple interest, where interest is not added to the principal, so there is no compounding. The simple annual interest rate is the interest amount per period, multiplied by the number of periods per year. The simple annual interest rate is also known as the nominal interest rate (not to be confused with nominal as opposed to real interest rates).