Compounding
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. |
Similar financial terms
Compounding frequencyThe number of compounding periods in a year. For example, quarterly compounding has a compounding frequency of 4.
Compounding period
The length of the time period (for example, a quarter in the case of quarterly compounding) that elapses before interest compounds.
Continuous compounding
The process of accumulating the time value of money forward in time on a continuous, or instantaneous, basis. Interest is earned continuously, and at each instant, the interest that accrues immediately begins earning interest on itself.
