Origin Dictionary / OD-010
Compound Interest
Your debt can grow while you sleep, too.
01Dictionary Meaning
Compound interest is interest calculated on an amount that includes previously accumulated interest, as well as the original principal.
02What People Think
"Start early. Wait. Get rich."
03What’s Underneath
Leave interest in a savings account and the next round can earn interest on a bigger balance.
On debt that adds unpaid interest to what you owe, the bigger balance can work for the lender. Whether and when this happens depends on the agreement.
Time magnifies the effect of the rate and the balance. It does not choose which side of the payment you stand on. Investment gains can also compound when reinvested, but unlike a fixed interest illustration, future returns can vary or turn negative.
04The Game
What is building on itself in your finances: the money you keep, the money you owe, or both?
05One Line
"Money working while you sleep" can describe your lender's money.
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References 1
- Compound Interest
SEC Investor.gov