Finance
What Is Compound Interest?
Compound interest is interest earned on both the original amount and previously accumulated interest, producing exponential growth over time.
Compound interest is interest calculated on the initial principal plus all interest accumulated so far — in other words, interest on interest. A $10,000 investment at 8% earns $800 the first year, but $864 the second year because the base has grown.
Over long periods the effect is dramatic: at 8% annually, money doubles roughly every nine years, meaning $10,000 becomes over $100,000 in 30 years without any additional contributions. The same math works against borrowers carrying high-interest debt.