Duhaime's Law Dictionary


Compound Interest Definition:

Interest paid on both principal and previously accumulated interest and added to the principal for purposes of future calculations of interest.

Related Terms: Usury

In 502 East 81st Street, Justice David Saxe of the Appellate Division of the Supreme Court of the State of New York adopted these words:

"Compound interest is interest paid on both principal and previously accumulated interest; at the end of each interest period, the accrued interest is added to the principal for purposes of future calculations of interest."

In Medical Mutual Liability Insurance Society v. Davis, Chief Justice Glenn Bell of the Court of Appeals of Maryland used these words in summarizing the plaintiff's arguments:

"The appellant also argues that the appellees are seeking to recover compound interest. The recovery of compound interest is not permitted. It submits (that) the appellees' claim is for interest on unpaid interest ... (and) the appellees ... cannot recover against the appellant for interest on the unpaid interest. The judgment awarded against it being for what is, in effect, compound interest, it concludes, must be reversed."

REFERENCES:

  • 520 East 81st Street Associates v. State, 19 AD 3d 24 (2005)
  • Duhaime, Lloyd, Legal Definition of Usury
  • Medical Mutual Liability Insurance Society v. Davis, 883 A. 2d 158 (2005)

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