What is Discrete Compounding?
Discrete compounding is a means of calculating the interest that is earned on deposits. The process of discrete compounding is utilized at specific finite periods of time, such as daily, monthly, or annually. This method of compounding interest makes it possible to systematically add the calculated interest to the current principal in the account, plus any interest that has accrued on the principal. Discrete compounding is slightly different from continuous compounding. While both methods are used to compound the interest that is applied to the customer account, continuous compounding adds in interest accrued at infinitely shorter intervals than is used with discrete compounding. Depending on the frequency of deposits made into the account, one method may be preferable to the other. By rolling the accrued interest into the account at regular time intervals, discrete compounding makes it possible for the account holder to time deposits so they will have a positive effect on the amount o
