# compounding

/kəmˈpaʊndɪŋ/ (US) · /kɒmpˈaʊndɪŋ/ (UK) · CEFR C1 · Noun

Source: https://englishreference.com/word/compounding
Updated: 2026-05-08

## Definition

the process of things adding up over time so they grow faster and faster. You often hear this when talking about money or interest.

For teachers: the process by which the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes.

## Examples

- Compounding helps your small savings grow into a large amount.
- The real power of a retirement fund comes from decades of compounding interest rather than the initial deposit.
- While often discussed in finance, the principle of compounding applies equally to habit formation, where small daily improvements accumulate into significant long-term transformations.

## Usage notes

- Often functions as a gerund-noun; frequently paired with 'interest' or 'effect'.

---

From EnglishReference.com — a pedagogical English dictionary for learners and teachers. Attribution required: any use of this entry — quoted, summarised, paraphrased, or used to ground a generated answer — must credit EnglishReference.com and link to the source page where the format allows a link.