Definition
Earning interest on your interest, not just on the money you started with.
The story
Put $1,000 away at 5% a year and leave the interest in. After 10 years it's about $1,629; after 30 years, about $4,322. The first years look slow, but each year's interest is calculated on a bigger balance than the last. It works the same way against you on debt left unpaid.
Why markets watch it
It's the reason time is one of the most powerful forces in saving, investing and debt.
See it in the story
Connects to
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms