A way of calculating interest in which, in each calculation period, the interest is added to the principal amount, and this new amount serves as the basis for calculating the interest in the next period, known as compound interest. The effective interest for the creditor is higher the more frequently the calculation is made. Thus, interest compounded daily is higher than interest compounded quarterly. The compound interest period is the time interval for calculating the interest and adding it to the principal, so that the total serves as the basis for the next interest calculation. As it is compounded, it implies interest on interest, and the shorter the period, the higher the actual or effective interest for the same nominal rate.
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