Interest calculated on both the original principal and previously earned interest.
Because compound interest earns interest on interest, growth accelerates over time compared to simple interest, which only applies to the original principal. Compounding frequency matters: interest compounded daily grows slightly faster than the same rate compounded annually. This is the core mechanic behind long-term investment growth and, on the flip side, credit card debt growth.
Not to be confused with: Simple interest, which is calculated only on the original principal.
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