What investing term describes the interest earned on interest that has already accumulated?

Compound interest is the interest earned on both an original principal and interest that has already accumulated.

With simple interest, returns are calculated only on the initial principal. With compounding, each period’s interest can become part of the balance used to calculate later interest. The effect becomes more powerful as the investment period lengthens, the interest rate rises, or interest compounds more frequently.

The idea is important in investing because returns are usually reinvested rather than permanently removed. A savings account that credits interest, or a fund whose distributions are reinvested, can therefore grow faster than an account receiving the same rate without reinvestment. Investment returns are not guaranteed, however, and market losses can also affect future growth.

A related concept is the rule of 72, a rough estimate that divides 72 by an annual percentage rate to estimate how many years doubling may take. Actual results depend on compounding frequency, taxes, fees, deposits, and whether the rate remains constant.