What is compound interest?
Compound interest is interest earned on both your principal and previously accumulated interest — the engine behind long-term wealth growth.
2026-01-15 · Wissenflow Team
What is compound interest?
Compound interest is interest calculated on the initial principal and also on the accumulated interest from previous periods. In plain terms: you earn interest on your interest, which accelerates growth over time.
How does compound interest work?
When you save or invest, your balance grows. With compound interest, each period's growth is added to your balance, so the next period's interest is calculated on a larger amount. The effect is modest at first but becomes powerful over years and decades.
Why does it matter?
Understanding compound interest helps you make better decisions about saving early, avoiding high-interest debt, and choosing investments with reinvested returns. It is one of the most important concepts in personal finance.