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Financial Encyclopedia

Compound interest


Compound interest is the interest that is accrued on both the initial investment amount and the reinvested interest of previous periods.


Suppose someone put 100,000 rubles in the bank at 8% per annum. In a year, the income will be 8,000 rubles. If you take away the income, next year you can get the same 8,000 rubles. However, if you do not take income,% will be accrued already on 108,000 rubles, and then next year's income will be 8,640 rubles. This is compound interest.

More detailed

Unlike simple interest, which is charged every time on the same initial amount, compound interest is regularly recalculated: the initial amount is added to income for a certain period, and then % is accrued on the increased amount of investments.


The more time passes, the more noticeable the effect of compound interest.

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