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| Compound interest may be contrasted with simple interest, where interest is not added to the principal (there is no compounding). Compound interest is standard in finance and economics, and simple interest is used infrequently (although certain financial products may contain elements of simple interest). | Compound interest is interest added to the principal of a deposit or loan so that the added interest also earns interest from then on. This addition of interest to the principal is called compounding. |
| *Graph & Information from wikipedia.org |
The effect of earning 20% annual interest on an initial $1,000 investment at various compounding frequencies.
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