What is an example of compound interest?

Compound interest refers to the interest that is calculated on the initial principal as well as on the accumulated interest from previous periods. This means that not only do you earn interest on your original investment, but you also earn interest on the interest that has already been added to your account. This ability to generate interest on previously earned interest leads to exponential growth of the investment over time.

In contrast, the other options signify different types of financial calculations or structures. For instance, calculating interest only on the principal amount pertains to simple interest, which does not take into account the effect of compounding. Flat rate fees charged for accounts are fixed charges and do not relate to interest at all. Similarly, interest rates that change weekly describe variable interest rates which might fluctuate, but again, do not pertain to the concept of compounding interest. Thus, option B correctly describes the mechanics of compound interest.