What "compound interest" means in finance

Compound interest is the interest calculated on the initial principal and on the accumulated interest of previous periods. In other words, it is the interest earned on the principal amount as well as on the interest that has already been earned. This can result in exponential growth of the investment over time. Compound interest can be calculated annually, semi-annually, quarterly, or even monthly, depending on the terms of the investment. It is commonly used in savings accounts, loans, and investments.