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compound interest
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compound interest


The power of compound interest over long periods of time is not intuitive.
  interest calculated on both the initial amount and on previous interest earned;

Example:  $100 invested at 10% interest would earn $10 per year, but if interest is compounded annually, it would earn $11 the second year
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Notes:
The more frequently interest is compounded, the more it will add up. Before computers were common, banks typically compounded balances each quarter. Today, it is easy to compound daily or even instantaneously (that is every instant); though increments in compounding frequency bring diminishing returns.

To compare rates with different compounding frequency, rates are often converted to an "Effective Annual Rate" (that is the equivalent rate if compounding were done annually); though the definition of this term is not universal.

When looking at loans, United States law creates a universal term, "Annual Percentage Rate (APR)" that converts a loan to it’s equivalent cost if it were compounded annually. The APR also adjusts upward to reflect lender fees.
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Samples:
  • The power of compound interest over long periods of time is not intuitive.
  • At the end of ten years they had paid everything, everything, with the rates of usury and the accumulations of the compound interest.
    Guy de Maupassant  --  The Diamond Necklace
  • —La! he shall pay for the thrashing he gave me with compound interest, I promise you.
    Baroness Orczy  --  The Scarlet Pimpernel
  • The devil goes on exacting compound interest to the last for his early share and numerous succeeding investments in them.
    Henry David Thoreau  --  Walden

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  • These, it seemed, were calculations of compound interest on what he called ’the principal amount of forty-one, ten, eleven and a half’, for various periods.
    Charles Dickens  --  David Copperfield
  • That was not particularly well; for he remained in the greatest perplexity, and, as the hours went on, and no kind of explanation offered itself, his perplexity augmented at compound interest.
    Charles Dickens  --  Hard Times
  • If a man had stolen a pound in his youth and had used that pound to amass a huge fortune how much was he obliged to give back, the pound he had stolen only or the pound together with the compound interest accruing upon it or all his huge fortune?
    James Joyce  --  A Portrait of the Artist as a Young Man
  • I’m of sound mind—can reckon compound interest in my head, and remember every fool’s name as well as I could twenty years ago.
    George Eliot  --  Middlemarch
  • They could easily have big establishments whole thing quite painless out of all the taxes give every child born five quid at compound interest up to twentyone five per cent is a hundred shillings and five tiresome pounds multiply by twenty decimal system encourage people to put by money save hundred and ten and a bit twentyone years want to work it out on paper come to a tidy sum more than you think.
    James Joyce  --  Ulysses
  • The longer the payment is withholden,[138] the better for you; for compound interest on compound interest is the rate and usage of this exchequer.
    Ralph Waldo Emerson  --  Selected Essays

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  • To question him in detail, and endeavour to reconcile his answers; to closet him with accountants and sharp practitioners, learned in the wiles of insolvency and bankruptcy; was only to put the case out at compound interest and incomprehensibility.
    Charles Dickens  --  Little Dorrit
  • Try it — it’s a compound-interest expansion.
    Robert A. Heinlein  --  Starship Troopers
  • The name of this old pagan’s god was Compound Interest.
    Charles Dickens  --  Bleak House
  • The longer the payment is withholden,[138] the better for you; for compound interest on compound interest is the rate and usage of this exchequer.
    Ralph Waldo Emerson  --  Selected Essays
  • Poor Mr. Casaubon had imagined that his long studious bachelorhood had stored up for him a compound interest of enjoyment, and that large drafts on his affections would not fail to be honored; for we all of us, grave or light, get our thoughts entangled in metaphors, and act fatally on the strength of them.
    George Eliot  --  Middlemarch
  • Foot passengers, jostling one another’s umbrellas in a general infection of ill temper, and losing their foot-hold at street-corners, where tens of thousands of other foot passengers have been slipping and sliding since the day broke (if this day ever broke), adding new deposits to the crust upon crust of mud, sticking at those points tenaciously to the pavement, and accumulating at compound interest.
    Charles Dickens  --  Bleak House
  • A Spanish prisoner’s donation of a distant treasure of valuables or specie or bullion lodged with a solvent banking corporation loo years previously at 5% compound interest of the collective worth of 5,000,000 pounds stg (five million pounds sterling).
    James Joyce  --  Ulysses
  • After a careful consideration of these, and an elaborate estimate of his resources, he had come to the conclusion to select that sum which represented the amount with compound interest to two years, fifteen calendar months, and fourteen days, from that date.
    Charles Dickens  --  David Copperfield
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Associated words [difficulty]:   compound interest , bond [4] , deposit slip [7] , stock [7] , Individual Retirement Account (IRA) [3] , bond [4] , financial commodities [5] , stock [7] , mutual fund [8] , hedge fund [9] , municipal bond [9]
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Most commonly used in these subjects:   Personal Finance, Business, Engineering
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