In personal finance, what does the term 'compound interest' primarily refer to?

A) Interest earned only on the initial principal amount.

B) Interest earned on both the initial principal and the accumulated interest from previous periods.

C) Interest rates that are fixed for the entire duration of an investment.

D) The process of diversifying an investment portfolio across various asset classes.

Explanation

Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that the interest in the next period is then earned on the principal sum plus previously accumulated interest.

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