Compound Interest
Noun
US
/ˈkɒmpaʊnd ˈɪntrəst/
UK
/ˈkɒmpaʊnd ˈɪntrəst/
US
/ˈkɒmpaʊnd ˈɪntrəst/
UK
/ˈkɒmpaʊnd ˈɪntrəst/
Interest calculated on the initial principal and also on the accumulated interest from previous periods — interest earning interest
A $1,000 deposit at 5% annual compound interest grows to $1,628.89 after 10 years. The formula is A = P(1 + r/n)^(nt) where P is principal, r is rate, n is compounding frequency.
Credit card debt at 20% APR compounds monthly: a $5,000 balance making only minimum payments would take 25+ years to pay off and cost over $8,000 in interest.
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Einstein reportedly called compound interest 'the eighth wonder of the world.' Warren Buffett began investing at age 11 and attributes 99% of his $100B+ wealth to compound returns accumulated over 70+ years of patient investing.
Used across various IT applications and business environments.
Practical application in IT systems and business operations.