Build Wealth with Compound Interest

Compound interest turns steady, modest contributions into substantial long‑term wealth. The key is behavior you can repeat: consistent deposits, low costs, and time in the market.

What is compound interest?

Compound interest means your balance increases not just from new deposits and the base rate, but also from reinvesting past interest. Over time, this creates a snowball effect that accelerates growth.

The basic idea

• Your balance earns interest
• That interest is added to your balance
• Next period, you earn interest on the larger balance (principal + prior interest)

Why compounding is powerful

• Time multiplies results: The earlier you start, the more cycles of growth you capture.
• Consistent contributions add up: Even small monthly deposits compound meaningfully across years.
• Reinvested earnings work for you: Dividends and interest that stay invested amplify total returns.

Rule of 72 (Quick Head‑Math)

Divide 72 by your annual return to estimate years to double. At 8% per year, money doubles in roughly 9 years.

Example: Small Deposits, Big Outcomes

Assume $150/month at a 7% annual return for 30 years:

• Total contributions: $54,000
• Ending balance: roughly $183,000–$200,000 (market returns vary)
• Over half of the ending balance is growth from compounding

How to Put Compounding to Work

1. Start as early as possible—even small amounts matter
2. Automate monthly contributions so you never skip
3. Reinvest dividends and interest (don’t let cash idle)
4. Prefer low‑fee, diversified funds to keep more of your returns
5. Increase contributions annually to outpace inflation

Common Mistakes to Avoid

• Trying to time the market rather than staying invested
• Holding high‑fee funds that erode compounding
• Letting cash sit uninvested for long stretches

Next Steps and FAQs

What should I do first? Automate a monthly transfer to a low‑fee, diversified fund, then increase it annually.

Is compound interest guaranteed? No. Markets fluctuate; compounding is the mechanism, not a guaranteed rate.

How often should interest compound? Monthly or better is fine; time invested and contribution size matter more than daily vs monthly.

What if markets fall? Keep contributing. Buying more shares at lower prices often helps long‑term results.

Use the calculator at /finance/compound-interest-calculator to model your plan, then set an automated transfer you can stick to.