Back

What is Compound Interest?

Learn how compound interest is calculated periodically – either daily, monthly, or quarterly – and then added back to your account balance.

Published May 06, 2022

Compound interest is calculated periodically—either daily, monthly or quarterly—and then added back to your account balance. The next time your interest is calculated, it’s based on the new, increased balance.

Transcript

Compound interest is the hidden superpower of saving because it helps your money make

more money.

Unlike simple interest, which is typically calculated once a year, compound interest is calculated periodically—either daily, monthly or quarterly—and then added back to your account balance. The next time your interest is calculated, it’s based on the new, increased balance. That means the more times your interest is compounded, the more money you will make.

Let’s say you start with $10,000 in an account that pays 5% simple interest. After 30 years, you’ll earn a total of $15,000. But if you put that $10,000 into an account that’s compounded annually, you’d make more than twice that at $33,219.42!

As you can see, when it comes to saving and investing, compound interest works

for you. But when it comes to borrowing money, there’s another side to this coin. For debts with compound interest, you’ll be paying interest on that interest (instead of earning it), so the longer the loan

lasts the more interest you’ll pay.

Related Videos

don’t let student loan debt weigh you down

Don’t Let Student Loan Debt Weigh You Down

Watch

Arjun Sirrah giving information about mortgage maximum affordability

Mortgage Maximum Affordability

Watch

Your Road Home

Your Road Home

Watch

Search Results

Disclaimers

This information provided is for informational purposes only and does not substitute consultation with a legal, tax or investment professional for important financial decisions. Laurel Road assumes no liability for loss or damage incurred by use of the information provided. Please visit laurelroad.com for full product details, terms and conditions.

All Laurel Road lending products are subject to credit approval.