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Compound interest
Compound interest is interest accumulated from a principal sum and previously accumulated interest. It is the result of reinvesting or retaining interest that would otherwise be paid out.
The effect of compounding depends on the frequency at which interest is compounded and the periodic interest rate which is applied. Therefore, in order to define accurately the amount to be paid under a legal contract with interest, the frequency of compounding (monthly, yearly, etc.) and the interest rate must be specified.
Compound interest is contrasted with simple interest, where previously accumulated interest is not added to the principal amount of the current period.