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TeachMeFinance.com - explain compound interest compound interest -- Interest earned on previously accumulated interest as well as the principle. another definition... compound interest -- the interest that accrues when earnings for each specified period of time are added to the principal, thus increasing the principal base on which subsequent interest is computed. See simple interest. simple interest -- interest that is calculated on the outstanding principal balance and not on any interest previously earned. See compound interest. historic definition... Compound interest -- Interest on interest after it has become due and has been added to the principal. The interest on deposits in savings banks, for instance, is computed at regular intervals and added to the principal and then interest continues on the whole. Many commercial banks allow interest on daily balances and thus as interest is computed it is added to the principal. About the author Mark McCracken Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English". Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.