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What Is Compound Interest?

January 5, 2017

You might have heard people use the term compound interest, but if you can’t answer the question “What is compound interest?” then you’re missing out on how compound interest affects your finances. The simple definition of compound interest is that it is interest paid on both the principal and accrued interest.

Check out this detailed breakdown of compound interest so you can better see how compounding can benefit — and hurt — your finances.

What Is Compound Interest?

So, exactly how does compound interest work? Compound interest is the interest paid on the initial principal, or account balance, as well as the amount of interest that accumulates.

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