2 Answers

Definition
While simple interest accrues a percentage based on the principal sum, compound interest accrues based on the original principal, plus any interest it's already accrued. This means that incrementally more and more is earned as the interest accrues.

In Practice
Here's an example of compound interest at work: Say you put $100 in the bank, with a generous 10 percent Annual Percentage Yield (APY). In a year, it earns $10 in interest, which you leave in the account. For the next year, the 10 percent interest will be applied to $110, instead of the original $100.

Compounded Daily
This term refers to investments which have the interest compounded once every day.

Compounded Quarterly
This term refers to investments which have the interest compounded once every three months, or quarterly term.

Simple Interest
Simple interest isn't necessarily inferior to compound interest. Depending on how often the interest is compounded, and the rate of interest, simple interest can potentially earn just as much as compound interest.

Read more: Compounded Daily Vs. Compounded Quarterly | eHow.com http://www.ehow.com/facts_5794380_compounded-daily-vs_-compounded-quarterly.html#ixzz23OdOwelg

If you're the lender; daily. If you're the borrower; quarterly.