Compound interest (redirected from Annual Equivalent Rate (or AER) as used in the UK)

Interest generated by the sum of the principal and any accrued interest.

Interest is normally compounded on a daily, quarterly, or yearly basis. The more often interest is compounded, the larger the principal will grow and the greater the interest the new principal will produce.

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compound interest n. payment of interest upon principal and previously accumulated interest which increases the amount paid for money use above just simple interest. Thus, it can increase more rapidly if compounded daily, monthly or quarterly. The genius physicist Albert Einstein called compound interest man's "greatest invention." Most lenders agree. (See: interest, promissory note)

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COMPOUND INTEREST. Interest allowed upon interest; for example, when a sum of money due for interest, is added to the principal, and then bears interest. This is not, in general, allowed. See Interest for money.