Compounding is the closest thing finance has to a free lunch. It is also the reason starting early matters more than starting big.
Interest on your interest
When your balance earns a return, and that return is added to the balance, next period you earn a return on a larger number. Repeated over years, the effect snowballs. The growth curve is not a straight line — it bends upward.
Frequency amplifies it
The more often interest compounds — annually, monthly, daily — the more you earn on the same nominal rate. That is why the annual percentage yield (APY) can exceed the stated rate.
The takeaway
Consistency and time do the heavy lifting. A modest amount saved regularly and left to compound often outperforms a larger amount saved later. The best day to start was years ago; the second best is today.
Watch compounding in action with the savings-growth tool in our business calculators.