Interest calculated on the initial principal and all accumulated interest from previous periods.
Compound interest is the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Unlike simple interest, which is calculated only on the principal amount, compound interest allows your investment to grow at an accelerating rate over time. The power of compound interest is often called the 'eighth wonder of the world' because it enables exponential growth of wealth when reinvested consistently over long periods.
If you invest $10,000 at an annual interest rate of 7%, compounded monthly, for 30 years, your investment would grow to approximately $81,000. This demonstrates the power of compound interest over long periods.