Trading glossaryReviewed 16 July 2026
Definition
Compound interest is interest calculated on principal plus previously credited interest, causing the balance to grow at an accelerating rate when returns stay positive.
In market context
The outcome depends on principal, rate, compounding frequency, time, fees, taxes, and whether credited interest remains in the account. Compounding also works against a borrower when charges are added to an outstanding balance, and negative investment returns interrupt the smooth-growth illustration. An APY incorporates a stated compounding assumption, while a simple annual rate may not, so product terms should be compared on the same basis.
Source
Use the primary source for fuller regulatory or market context.