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13 October, 07:54

Jamie earned $180 in interest on her savings account last year. She has decided to leave the $180 in her account so that she can earn interest on the $180 this year. The interest Jamie earns this year on this $180 is referred to as:

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  1. 13 October, 07:59
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    Interest on Interest or Compound Interest

    Explanation:

    The process of earning interest on prior interest income is called "Interest on Interest" which is also known as "Compound Interest".

    It is the result of reinvesting interest instead of withdrawing out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest.
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