The number of times interest is calculated and added to the sum of the principal and any interest added during a particular period (nearly always one year). More frequent compounding results in a more rapid buildup of funds. For example, $1,000 deposited at 12% compounded twice a year equals $1,000(1.06)(1.06), or $1,123.60 at the end of one year, while compounding four times a year results in $1,000(1.03)(1.03)(1.03)(1.03), or $1,125.51.
