Compound Interest Legal Meaning and Definition

Here is a simplified definition of the legal term Compound Interest.

Compound Interest (noun): A type of interest that is calculated based on the initial principal amount (the original amount of money) and the accumulated interest from previous periods. In other words, compound interest allows your initial investment to grow faster because you earn interest on the money you deposit, and also on the interest you have already earned. The frequency of compounding can vary, such as daily, quarterly, or yearly. This means that the total amount of money grows more quickly compared to simple interest, where only the original principal amount earns interest.