How compound interest works

What is compound interest?

Compound interest means you earn returns on your money, and then continue earning returns on those returns over time. Instead of growth happening in a straight line, your wealth can begin to grow faster the longer you stay invested.

Why time matters so much

Time is the biggest advantage in compounding. The earlier you start, the more years your money has to build on itself. Even modest monthly investing can become significant when given enough time.

Small contributions still matter

Many people think investing only works if you begin with a large lump sum. In reality, regular monthly contributions can make a major difference. A consistent habit often matters more than trying to time the market perfectly.

Why consistency beats hesitation

Waiting for the perfect moment often delays progress. Starting now with an amount you can afford and increasing it over time is usually more effective than endlessly planning and never beginning.

Use CompoundLab to test scenarios

A calculator helps make compound interest easier to understand. You can test different starting balances, monthly contributions, time periods and growth rates to see how your decisions affect your long-term outcome.

Try the Compound Interest Calculator to model your own numbers.