Identification
- Compound interest is money that is earned on an investment, which is then put back into the original principal amount. The investment grows as if the earned interest is part of the principal. For example, if you invest $100 and earn 5 percent interest in a year, then your interest amount would be $5. If you let that money compound and earn another 5 percent, your interest would accumulate on $105 instead of just $100.