Glossary · from the DESK dictionary
Compound Interest
Interest calculated not just on the original principal, but also on interest already accumulated.
In plain words
'Interest on interest' — this makes capital grow at an accelerating rate over time, instead of just linearly.
Formula
Final value = Initial capital × (1 + Interest rate)^Years
Capital grows by the interest rate each year, with the base for calculation growing along with it each year.
Example
€1,000 at 7% compound interest grows to about €1,967 after 10 years, versus just €1,700 with simple interest.
What it means for traders
One of the most fundamental concepts in long-term investing — often called the "eighth wonder of the world".
Common pitfalls
Also works against you — for debt, the compounding effect grows just as unpleasantly fast.
Related terms
Auto-Compounding · Compound Annual Growth Rate (CAGR) · Continuous Compounding · Effective Annual Interest Rate · Exponential Growth · Frequency of Compounding
From the DESK dictionary. For information only, not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-10-12.