What is compounding interest mean?

Compound interest is the concept of adding accumulated interest earned back to the principal, so the principal plus the interest is earned on interest from that moment on.

Compounding means that money on your account plus interest is earning money base on the given rate.it's like generating earnings from previous earnings. There is no need to withdraw and reinvest. Interest will automatically be added to your account balance and next day so your investment will be: Balance + past interest.

Interest rates depend on what the individual financial institute can offer.Most fixed deposit offer by the bank is yearly/monthly compounding rate.However some investment company offering daily compounding interest to the investor.The risk factor should take into consideration base on the compounding period. (HYIP is offering daily plan).

Interest rates must be comparable in order to be useful, and in order to be comparable, the interest rate and the compounding frequency must be disclosed.

Compound interest rates may be converted to allow for comparison: for any given interest rate and compounding frequency, an "equivalent" rate for a different compounding frequency exists.

Compound interest may be contrasted with simple interest, where interest is not added to the principal (there is no compounding). Compound interest predominates in finance and economics, and simple interest is used infrequently (although certain financial products may contain elements of simple interest).

by:http://earningsource.blogspot.com/
ref:http://en.wikipedia.org/wiki/Compound_interest