Also found in: Dictionary, Thesaurus, Medical, Legal, Idioms, Encyclopedia, Wikipedia.


The process of accumulating the time value of money forward in time. For example, interest earned in one period earns additional interest during each subsequent time period.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


The process of earning interest on a loan or other fixed-income instrument where the interest can itself earn interest. That is, interest previously calculated is included in the calculation of future interest. For example, suppose someone had the same certificate of deposit for $1000 that pays 3%, compounding each month. The interest paid is $30 in the first month (3% of $1,000), $30.90 in the second month (3% of $1,030), and so forth. In this situation, the more frequently interest is compounded, the higher the yield will be on the instrument. See also: Amortization, Time value of money, Simple interest.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


Compounding occurs when your investment earnings or savings account interest is added to your principal, forming a larger base on which future earnings may accumulate.

As your investment base gets larger, it has the potential to grow faster. And the longer your money is invested, the more you stand to gain from compounding.

For example, if you invested $10,000 earning 8% annually and reinvested all your earnings, you'd have $21,589 in your account after 10 years.

If instead of reinvesting you withdrew the earnings each year, you would have collected $800 a year, or $8,000 over the 10 years. The $3,589 difference is the benefit of 10 years of compound growth.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Downstream equipment for blown and cast film, sheet, laminations, pipe, profile, fibers, and compounding. Underwater pelletizing lines.
Special designs available for compounding of scrap materials include force feeders, ram stuffers and dual-diam, extruders.
All efforts should be exercised to minimize the presence of moisture and other volatiles in raw rubber(s) and compounding ingredients.
The first priority in solving a bloom problem is to identify what compounding ingredient(s) is causing the bloom (the appearance alone may not be sufficient to make this identification).
Builds in-line extrusion lines for direct compounding of continuous, long-glass profiles using the "Pultrusion" DLFT process from Woodshed Technologies.
Also from Theysohn Maschinebau corotating, intermeshing twin-screw compounding extruders with screw diam.
Draiswerke's most recent Gelimat modification is for another hot area of technical and market development-direct long-fiber thermoplastic (D-LFT) compounding and molding.
Our library of over a thousand proprietary formulas allows Biltrite Industries to provide you with a tidl range of technical compounding services the result of which produces compounds that are used in a wide range of applications worldwide.
The buzz in compounding with wood fillers is combining wood and glass for direct extrusion of high-strength lumber profiles.
An electronic temperature sensor tells when compounding is complete and ejects the batch through a discharge door into a melt pump, short extruder, or calender.
Introducing OxyPP, a family of PP-based materials with polar functionality for masterbatch and compounding markets.
Once this baseline is established, as well as a con-elation with downstream quality problems, a Six Sigma team (representing different areas of manufacturing, compounding and laboratory testing) brainstorms on possible assignable causes of this variation.