Question

Tomas earned $89 in interest on his savings account last year and has decided to leave the $89 in his account this coming year so it will earn interest. This process of earning interest on prior interest earnings is called ________.

Answer 1

Answer:

compound interest

Explanation:

compound interest is a practice where the interest earned qualifies to earn more interest. Compound interest is offered on some savings accounts. The interest earned every  year is not withdrawn but is added to the principal amount. The principal amount increases at the beginning of every period.

The act of adding interest to the principal, which results in interest earnings on interest, is known as compound interest. Accounts that offer compounding interest are preferred to simple interest accounts. A saved amount in a compound interest account will grow faster as the principal amount will increase every year.