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Glossary

Investing

Compound interest

Compound interest is the return generated on both the original principal and the interest already accumulated in prior periods.

Formula: Final balance = P0 × (1 + i)^n

Its effect grows exponentially over time: over long horizons, most of the final balance comes from interest rather than contributions.

It requires two conditions: reinvesting returns and not interrupting the process. Withdrawing money or pausing contributions resets a large part of the effect.

Put it into practice

Related terms

  • IRR — IRR (internal rate of return) is the annual rate that equates the present value of an investment with all its cash inflows and outflows on their actual dates.
  • Dividend — A dividend is the share of profit a company distributes to its shareholders, usually in cash and on a regular schedule.
  • Real return — Real return is the nominal return adjusted for inflation: it measures the actual increase in purchasing power.

Bring it to your own numbers

netclariq applies these concepts to your real accounts, debts and investments, with simplified double-entry bookkeeping and without asking for your bank credentials.

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Educational content. netclariq does not provide financial, investment, tax or legal advice.