Commercial Real Estate Dictionary

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Compound interest

Definitions of Compound interest
  • Compound interest is interest earned on interest that is reinvested at the end of each period.
    With compounded interest each month, I actually make more than 5% per year on my initial savings. I'm earning interest on interest since I leave the interest in my savings account and don't make any withdrawls.


Compound Interest

Compound interest is an importing concept in finance. It is interest earned on the initial principal invested plus interest earned on interest reinvested. The result is that the investment grows at a greater rate than if interest where just paid on the principal amount.

Compound interest is different than simple interest. Simple interest is paid on the principal amount only. Interest earned is not reinvested, so you don't have the advantage of earning interest on interest.

Compound interest occurs over multiple periods. If you were to invest for a single period, you would not be able to reinvest any interest earned.


        

Real Estate Terms

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