Compound Interest Glossary

A series of equal payments made at regular intervals. The future value of an annuity accounts for compound interest on each payment.

The stated yearly interest rate without accounting for the effect of compounding.

The effective annual return after accounting for compounding frequency. Always equal to or greater than APR.

Interest calculated on both the initial principal and all previously accumulated interest, resulting in exponential growth.

How often interest is calculated and added to the principal (annually, quarterly, monthly, daily, or continuously).

The theoretical limit of compounding frequency, using the formula A = Pe^(rt) where e is Euler number (approximately 2.71828).

The value of a current asset at a specified date in the future based on an assumed rate of growth through compound interest.

The current worth of a future sum of money, discounted at a specific rate to account for the time value of money.

The initial amount of money deposited, invested, or borrowed before any interest is applied.

The nominal interest rate adjusted for inflation, reflecting the true change in purchasing power.

A quick estimation method: divide 72 by the annual interest rate to approximate how many years it takes to double an investment.

Interest calculated only on the original principal amount, producing linear growth over time. Formula: I = P x r x t.

The principle that money available now is worth more than the same amount in the future due to its potential earning capacity.