Compound interest

Compound interest is interest accumulated from a principal sum and previously accumulated interest. It is the result of reinvesting or retaining interest that would otherwise be paid out, or of the accumulation of debts from a borrower.

Compound interest is contrasted with simple interest, where previously accumulated interest is not added to the principal amount of the current period. Compounded interest depends on the simple interest rate applied and the frequency at which the interest is compounded.
The compounding frequency is the number of times per given unit of time the accumulated interest is capitalized, on a regular basis. The frequency could be yearly, half-yearly, quarterly, monthly, weekly, daily, continuously, or not at all until maturity.

For example, monthly capitalization with interest expressed as an annual rate means that the compounding frequency is 12, with time periods measured in months.
o help consumers compare retail financial products more fairly and easily, many countries require financial institutions to disclose the annual compound interest rate on deposits or advances on a comparable basis. The interest rate on an annual equivalent basis may be referred to variously in different markets as effective annual percentage rate (EAPR), annual equivalent rate (AER), effective interest rate, effective annual rate, annual percentage yield and other terms. The effective annual rate is the total accumulated interest that would be payable up to the end of one year, divided by the principal sum. These rates are usually the annualised compound interest rate alongside charges other than interest, such as taxes and other fees.