CONCEPT / EXAMPLE / CONTEXT

Compound interest

Interest calculated on principal and on interest already accumulated. The compounding period determines when interest is added to the balance.

An example to understand it

With 1,000 at 5% annually, compounded once a year, year one ends at 1,050. In year two, 5% applies to 1,050, producing 1,102.50 before contributions or costs.

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Concept references

Investor.gov · Compound interest ↗ · Accessed: 2026-11-03

Definition and example prepared with AI assistance. Hypothetical examples, not current market data. · 2026-11-03