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What is compound interest?

 

What is compound interest?

The Bankrate.com financial term of the day is: "Compound Interest"

Interest makes your money grow, and compound interest makes your money grow faster. You earn interest not only on your principal, but also on the interest that has already been added to it. Let's say you put an amount of money we'll call "A" into the bank. We'll call your first interest payment "B." Your second interest payment, which we could call "C," is paid on A plus B. Your third interest payment is paid on A plus B plus C, and so on.

Compound interest can be great for savers, not-so-great for borrowers because it can pump up a debt in the same way it can pump up a deposit.

To find the perfect bank account, visit the Bank Accounts section at Bankrate.com.

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