Compound Interest Explained Simply

Compound interest is interest earned on both your original money and the interest it has already earned. Over long periods, the effect can be dramatic.

Simple vs compound

Simple interest only grows on the principal. Compound interest grows on principal + accumulated interest — which is why long-term investing is so powerful.

Key variables

• Starting amount (principal)
• Annual interest rate
• Compounding frequency (yearly, monthly, daily)
• Time horizon

Try it yourself

Plug numbers into our compound interest calculator to compare scenarios. Small rate differences add up over decades.

Educational tool only — not investment advice.