What Is Compound Interest?

Growth on top of growth

In a simple model, you earn a return on the money you put in. With compounding, each period's growth is added back to your balance, so the next period's return is calculated on a larger amount.

Over a year or two the difference is small. Over decades, that growth-on-growth becomes the largest part of your final balance — often far more than the amount you actually contributed.

Why time is your biggest advantage

Compounding rewards patience. The longer your money stays invested, the more cycles of growth it goes through, and each cycle builds on every cycle before it.

This is why starting earlier often matters more than investing larger amounts later. A smaller sum with more time can outgrow a larger sum with less time.

Contributions plus consistency

Regular contributions give compounding more to work with. Investing a steady amount on a schedule, then leaving it to grow, lets both your savings and their returns build on each other.