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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 ?
It also can be blended and compounded with natural rubber to give lower cost rubber products with good physical properties.
For example, the EVA formulation compounded with the TAC produced the largest decreases in tear strength and Eb compared to the control.
Since the study's experimental CPE formulation was not compounded for a specific industrial application, the water swell numbers are higher than expected for industrial use.
Reactor TPO is less expensive to make than compounded TPO, partly because ethylene monomer is a less expensive feedstock than EP rubber, and partly because compounding has the cost of grinding, blending and extruding the rubber with PP.
I haven't seen anything in writing, but resin companies say they're willing to market at a 10-15% lower price |than equivalent compounded grades~." Processors also save by buying bulk unpigmented material and not having to store many smaller batches precolored black, gray and other colors.
Elastomers compounded with medium thermal black exhibit a very low degree of compression set.
Depending on the application's requirements and processor's preferences, SFR-100 resin may be compounded with any number of polyolefin systems, yielding different flame and mechanical properties.
Not only are cost advantages involved, but a molder can have his own scrap custom-ground and treated, thus insuring him control not only of its content, but also any chemical resistance properties he may have compounded into the original recipe.
Resin, silane, peroxide, and another additive package were compounded, and melt was sampled by both a Rheometrics on-line melt indexer (introduced at NPE'88 in Chicago) and an Automatik IROS-100 on-line infrared spectrometer.