compound interest

This term describes a financial mechanism where interest is earned on both the original principal and the accumulated interest from previous periods. It creates an exponential growth curve, making it a powerful tool for long-term saving and investment, but a dangerous burden when applied to high-interest debt.

In a professional financial context, it is contrasted with simple interest, which is calculated only on the principal amount. Because it is a specialized financial concept, it is almost always used as an uncountable noun in discussions of economic theory or banking terms.