Compound interest is another word for earning interest on interest. Compound interest is a common principle used in investing, giving your money super powers by letting it work for you. Tell me more
See what compound interest can do for you
Move your mouse over the chart to view the values in a different year.
The compound interest principle
With compound interest you are not only receiving interest on your money once — your interest is also earning interest. It doesn't do this via some magic, it happens by itself if you add your earned interest back to your principal balance — letting it receive interest the next year too.
Imagine starting out with a balance of $1,000 and earning a yearly interest of 5%. After one year you would receive $50, giving you a total of $1,050 dollar. The following year you would receive 5% interest on $1,050 dollar, being $52.50 — making your balance now $1,102.50. This difference will get bigger each year. 👇
Patience is key 🧘♀️😴
The power of compound interest lies in the number of years you leave your money in. The longer you let your money compound, the faster it will grow. If you kept the $1,000 from the previous example and let it compound with an annual rate of 5% for 30 years, you would end op with a balance of $4,321.94!
Keep adding money
This is where it gets even better! Rather than putting some money in and not touching it for years, we're going to add a little bit each month. By adding a small monthly contribution to your investment every month, you will only accelerate the growth.
Adding $100 dollar to your initial investment of $1,000, while letting it compound for 30 years will give you a total balance of $84,048.56. In these 30 years you have contributed $37,000 yourself — the rest is thanks to the power of compound interest.
Definitely play with your monthly contribution to see the impact it has!
Love this! But where do I even get 5% interest?
Your bank probably won't give you a percentage even close to this... We know 😅
When we talk about percentages like this we are rather referring to investing your money in so called ETFs. An example of this is the S&P500 ETF. Since it started tracking 500 shares in 1957, this ETF has returned an average return of around 11-12% (with dividends reinvested).12
We can't stress this enough: We do not provide this info as investment advice! This page is only intented as educational. Always do your own research — never blindly trust a single source online.
Learn more about compound interest
The explanation on this page is simplified. There are many more things to explain. Currently this website is still under development — we are working hard on gathering all the information in one place.
Soon we will be adding additional pages explaining certain topics more in depth. We are also creating a list with our favorite books and blogs to read.
Sources used on this page
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* The calculators and tools on this website are provided for your information and to illustrate scenarios and should not be taken as investment, financial or other advice. Read our disclaimer