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Compound interest is nothing more than basic arithmetic, but this financial rule has important implications for both saving and borrowing. It could help you build your savings account over time or rack up runaway debt if you let it.
Here's how compound interest works — and how to make it work for you.
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4.30%Earn up to 4.30% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.60% APY as of 11/12/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 1/31/26. Rates variable, subject to change. Terms apply at sofi.com/banking#2. SoFi Bank, N.A. Member FDIC.
Minimum Balance for APY
$0
Bonus Offer
Up to $300New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Eligible Direct Deposit. If you have satisfied the Eligible Direct Deposit requirements but have not received a cash bonus in your Checking account, please contact us at 855-456-7634 with the details of your Eligible Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC.SoFi members with Eligible Direct Deposit can earn 3.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Eligible Direct Deposit amount required to qualify for the 3.60% APY for savings (including Vaults). Members without Eligible Direct Deposit will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional information can be found athttp://www.sofi.com/legal/banking-rate-sheet.
Why We Like It
Earn a $50 or $300 bonus and up to 4.30% APY1 <p>New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Eligible Direct Deposit. If you have satisfied the Eligible Direct Deposit requirements but have not received a cash bonus in your Checking account, please contact us at 855-456-7634 with the details of your Eligible Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC.</p><p>SoFi members with Eligible Direct Deposit can earn 3.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Eligible Direct Deposit amount required to qualify for the 3.60% APY for savings (including Vaults). Members without Eligible Direct Deposit will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional information can be found at<a href="http://www.sofi.com/legal/banking-rate-sheet" >http://www.sofi.com/legal/banking-rate-sheet</a>.</p> on your money with eligible direct deposit
Limited-Time Offer: +0.70% Boost on Savings APY for 6 months on new accounts with eligible Direct Deposit. Terms Apply.2 <p>Earn up to 4.30% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.60% APY as of 11/12/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 1/31/26. Rates variable, subject to change. Terms apply at <a href="https://www.sofi.com/banking/#2">sofi.com/banking#2</a>. SoFi Bank, N.A. Member FDIC.</p>
No account, overdraft, or monthly fees3 <p>We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a></p>
Get your paycheck up to two days early with direct deposit4 <p>Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.</p>
Access additional FDIC insurance up to $3 million5 <p><b style="font-family: Rubik, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, "Helvetica Neue", Arial, sans-serif;">SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>.</b></p>
Compound interest is when interest accrues on the principal — the initial amount — as well as on previously accrued interest. Compound interest can apply to both borrowing and saving money.
When a bank charges compound interest on debt, the interest owed is calculated based on the principal plus any existing interest. Compounded this way, debts can start to get out of control very quickly. Credit cards and loans often charge compound interest.
You can also earn compound interest on savings, where the bank pays you interest based on your principal as well as the interest you've already earned. This makes it easier to amass much more wealth over time than you would if the interest weren't compounded. You can earn compound interest on savings accounts (including high-yield savings accounts), certificates of deposit (CDs) and money market accounts.
How compound interest works
When interest compounds, the lender applies each new interest calculation to both the remaining loan (the principal) and any existing interest on the account.
Here's an example. Say you buy shares of a mutual fund paying an average interest rate of 7% per year. You put $10,000 into this mutual fund and reinvest the earnings.
Here's how your initial investment would grow over time, assuming interest is compounded annually:
Year one: $10,700 ($10,000 x 1.07)
Year two: $11,449 ($10,700 x 1.07)
Year three: $12,250.43 ($11,449 x 1.07)
Let's skip ahead a bit:
Year 13: $24,098.45
Year 14: $25,785.34
Year 15: $27,590.32
As you look at the example above, it isn't just the balance in your account that grows. The rate of change itself also increases over time.
During the first few years of this account, you add $700 or so per year, so the growth you see is probably not that different from simple interest. But by the fifteenth year of this account, it's growing by $1,805 per year, more than 2.5 times its original rate of growth.
While your interest rate in this example remains the same at 7%, the rate at which your balance grows accelerates. Let's look at what happens if you hold this investment even longer:
Year 23: $47,405.30
Year 24: $50,723.67
Year 25: $54,274.33
Now your account is growing by approximately $3,500 each year. By year 25, your new balance on that $10,00 initial investment is $54,724.33. This is the strength of compound interest — and how it can sometimes seem like magic.
To find out how you can build an account like this, see our picks for the best brokerage accounts.
How to calculate compound interest
Interest can compound on any schedule: annually, quarterly, monthly, even daily with certain high-yield savings accounts. In the mutual fund example above, the interest is compounded annually.
You can calculate compound interest using the following compound interest formula. This formula can be used to calculate compound interest in a savings or lending context as well as compound returns in an investing context:
A = P x (1 + r/n)nt
Where:
A = Amount
P = Principal
r = Interest rate (expressed as a decimal)
n = Number of times interest is compounded per unit of time (t)
t = Time
It's important to use the same time period for all parts of this formula. For example, if you are measuring t in years, n should be the number of times interest is compounded annually.
Example of calculating compound interest
Let's say you're calculating the growth of a $10,000 principal at a 5% annual interest rate, compounded monthly for 25 years. Your formula would look like this:
A = 10,000 x (1 + 0.05/12)(12x25)
Note the relationship between n and t. Since we are calculating interest over a period of years, we calculate the number of times interest compounds each year. In this example, the interest is compounded monthly, so 12 times per year, for 25 years: 12 * 25 = 300. So the interest has been compounded and added to the principal 300 times.
A = 10,000 x (1 + 0.0041667)(12x25)
A = 10,000 x (1.0041667)300
A = 10,000 x 3.48132
A = $34,813
At the end of 25 years, your initial $10,000 deposit will have grown to $34,813 without adding any additional deposits beyond the interest earned.
Rule of 72 for estimating compound interest
If you prefer a quick and simple compound interest calculator, you can also use the Rule of 72 to roughly determine how long an account will take to double in value.
Time to double = 72 / interest rate
So, in our example above, we would get a rough calculation of:
Time to double = 72 / 5
At 5% interest, compounded annually, it will probably take a little more than 14 years (72 / 5 = 14.4) for this account's balance to double.
Compound interest vs. simple interest
In a borrowing situation, a lender will typically set one of two main types of interest rates: compound or simple.
Simple interest means that you pay a flat rate applied to the loan every payment period. Say you take out a $10,000 loan with a simple interest rate of 5% per year. You would pay $500 in annual interest on this loan, or $41.67 in interest each month.
Simple interest does not use previously earned interest in its calculations, unlike compound interest.
How to make compound interest work for you
Compound interest is one of the most powerful financial tools in the market. Unchecked, it has the potential to make debt unmanageable. Credit card balances in particular can grow quickly if you don't pay them off each month, due to compounding interest and relatively high interest rates.
However, used wisely, compound interest can help you build your savings over time. Saving for retirement is a great example of starting early and letting compound interest do the heavy lifting. Here are a few ways to take advantage of compound interest.
Start saving early
As we saw in the example above, compound interest can have little impact at the beginning. For a standard account where interest compounds monthly or annually, you will rarely see much difference between compound and simple interest in the first few years. But after many months or years, the balance begins to grow exponentially, even without additional investments.
Understand compounding frequency
Compound interest is defined by compounding periods. In other words, how often is the interest on your account compounded?
An account with interest that compounds every month could earn more faster than one that compounds annually. So it's good to know how often interest compounds on your accounts, especially if you're interested in understanding the future value of your savings.
Understand potential returns
Finally, the returns on an interest-bearing account with regular compounding can be difficult to fully predict when doing the math in your head. Take a few minutes to run the numbers on what your account will generate over the lifetime of your investment, or visit this calculator provided by the SEC. By understanding your potential returns today, you will be better prepared to plan for tomorrow.
4.7
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Openbank High Yield Savings - 4.20% APY6 <p>Interest Rates and Annual Percentage Yields (APYs) are accurate as of 12:01 AM ET September 23, 2025. The products and rates we offer may vary between locations, are available in select markets only, and are subject to change without notice. Rate for this product will be based on the residential ZIP code entered when account is opened within online application process. This is a variable-rate account and the rate applicable may change at our discretion any time without notice. A minimum deposit of $500 is required to open a Openbank High Yield Savings account. Personal accounts only.</p>
<p>Openbank is a division of Santander Bank, N.A. Member FDIC. There is a maximum of $250,000 of deposit insurance from the FDIC per depositor for each category of account ownership. Visit FDIC.gov for details. Deposits at Santander Bank, N.A., and Openbank are combined for the purposes of calculating FDIC insurance limits (FDIC Cert #29950) and are not separately insured.</p>
Earn 10x the national savings average for Savings deposit products as published on FDIC.gov.
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Our partners do not influence our ratings.
2025 award winnerBest Checking and Savings Combo
SoFi Checking & Savings - Earn Up to $300 When You Set Up Direct Deposit
Limited-Time Offer: Earn a $50 or $300 bonus and up to 4.30% APY on Savings (3.60% APY1 <p>New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Eligible Direct Deposit. If you have satisfied the Eligible Direct Deposit requirements but have not received a cash bonus in your Checking account, please contact us at 855-456-7634 with the details of your Eligible Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC.</p><p>SoFi members with Eligible Direct Deposit can earn 3.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Eligible Direct Deposit amount required to qualify for the 3.60% APY for savings (including Vaults). Members without Eligible Direct Deposit will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional information can be found at<a href="http://www.sofi.com/legal/banking-rate-sheet" >http://www.sofi.com/legal/banking-rate-sheet</a>.</p> with +0.70% APY Boost) for 6 Months on new accounts with eligible direct deposit. Terms Apply.2 <p>Earn up to 4.30% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.60% APY as of 11/12/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 1/31/26. Rates variable, subject to change. Terms apply at <a href="https://www.sofi.com/banking/#2">sofi.com/banking#2</a>. SoFi Bank, N.A. Member FDIC.</p> FDIC Insured.5 <p><b style="font-family: Rubik, -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, "Helvetica Neue", Arial, sans-serif;">SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>.</b></p>
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Use Cash App As Your All-in-One Financial Services Platform
Bank7 <p>Cash App is a financial services platform, not a bank. Banking services provided by Cash App’s bank partner(s). Savings provided by Cash App, a Block, Inc. brand.</p><p class="">Cash App is a financial services platform, not a bank. Banking services provided by Cash App’s bank partner(s). Direct Deposit provided by Cash App, a Block, Inc. brand.</p> without all the fees—save, send, and spend your money the way you want.8 <p class="">Your balance is eligible for FDIC pass-through insurance through our Program Banks Wells Fargo Bank, N.A. and/or Sutton Bank, Members FDIC for up to $250,000 per customer when aggregated with all other deposits held in the same legal capacity at each Program Bank above, if certain conditions are met. Cash App is a financial services platform, and not an FDIC-insured bank. Prepaid debit cards issued by Sutton Bank, Member FDIC. See <a href="https://cash.app/legal/us/en-us/card-agreement">terms and conditions</a>. </p> Get paid up to 2 days early – up to 2 days earlier than most banks9 <p>Your first deposit may take longer depending on your employer.</p>
How much $100,000 will be worth depends on the interest rate you earn. As an example, let's consider a $100,000 initial deposit into a no-cost exchange-traded fund (ETF) that tracked the S&P market index from 2000-2020, with dividends reinvested quarterly. Note that the S&P returned an average of 8.2% annually during this period, despite economic downturns following the 9/11 attacks and the 2008 recession.
By plugging these numbers into our compound interest formula, we get:
A = P x (1 + r/n)nt
A = 100,000 x (1 + .082/4)4x20
A = 100,000 x (1.0205)80
A = 100,000 x 5.0704
A = 507,040
With this investment, you'd end up with roughly $507,040 — five times your initial investment — at the end of the 20 years, thanks to compounding returns.
Note that the past performance highlighted in the example above is not a guarantee of future performance. Nobody can predict how the stock market will perform in the next 20 years. That said, this type of hypothetical modeling can be useful if you're interested in understanding the possible outcomes of your investments. Just remember that all investments come with the risk of loss.
Is compound interest a good thing?
In a savings and investment situation, compound interest and compound returns are the chief ways to build stable wealth through investment. While it's always fun to hit it big on a single stock or speculative asset, most investors generally see gains by steadily building wealth and letting it grow on its own earnings.
For debt, however, compound interest can be disastrous. Left unpaid, compound interest can cause personal debt to grow to the point where you end up paying more in interest than you took out on the original loan.
Can compound interest make you rich?
Taking advantage of compound interest could potentially be a good way to build wealth. However, there's often a correlation between the potential rate of return and risk level. Putting money into a traditional savings account is considered pretty low risk, but then the annual percentage yield (APY) on a traditional savings account is just 0.46% (as of September 13, 2024). Given this, it's unlikely you'll get rich off the compounding interest in your savings account.
In an investing context, bonds could be considered one of the safer investments on the market, but they also tend to pay some of the lowest rates of return. Stocks have a higher potential for return yet are inherently riskier than bonds. While it's possible to build wealth with smart investments, it's also possible to lose money.
Bottom line
Compound interest can be a very powerful tool when it comes to savings and investing (and a major obstacle when it comes to debt). As your account grows, your returns on that account could potentially grow too.
Given time, compound interest is one of the best ways to grow wealth on the market today. If you are interested in taking advantage of compound interest, check out our picks for the best savings accounts.
FinanceBuzz writers and editors score products and companies on a number of objective features as well as our expert editorial assessment.
Our partners do not influence our ratings.
2025 award winnerBest Checking and Savings Combo
High APY of up to 4.30% on Savings (3.60% APY1 <p>New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Eligible Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Eligible Direct Deposit. If you have satisfied the Eligible Direct Deposit requirements but have not received a cash bonus in your Checking account, please contact us at 855-456-7634 with the details of your Eligible Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC.</p><p>SoFi members with Eligible Direct Deposit can earn 3.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Eligible Direct Deposit amount required to qualify for the 3.60% APY for savings (including Vaults). Members without Eligible Direct Deposit will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional information can be found at<a href="http://www.sofi.com/legal/banking-rate-sheet" >http://www.sofi.com/legal/banking-rate-sheet</a>.</p> with +0.70% APY Boost) for 6 Months on new accounts with eligible direct deposit. Terms Apply.2 <p>Earn up to 4.30% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.60% APY as of 11/12/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 1/31/26. Rates variable, subject to change. Terms apply at <a href="https://www.sofi.com/banking/#2">sofi.com/banking#2</a>. SoFi Bank, N.A. Member FDIC.</p>
Paycheck access up to 2 days early with direct deposit4 <p>Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.</p>
No monthly maintenance or overdraft fees3 <p>We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a></p>
Streamlined savings and savings goals with Vaults
Access to a large ATM network10 <p>We’ve partnered with Allpoint to provide you with ATM access at any of the 55,000+ ATMs within the Allpoint network. You will not be charged a fee when using an in-network ATM, however, third-party fees may be incurred when using out-of-network ATMs. SoFi’s ATM policies are subject to change at our discretion at any time.</p>
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