Compound Interest Explained Simply

Compound interest is why a financially boring 25-year-old can finish richer than a high-earning 40-year-old who started later. Here's what it actually is, with numbers you can check yourself.

What it is

Simple interest is paid only on the money you put in. Compound interest is paid on your money plus the interest it has already earned. The base that earns interest grows every period, so growth accelerates.

Why time matters more than the amount

£200/month at 7% average return. After 10 years: ~£34,000. After 20: ~£104,000. After 30: ~£244,000. You contributed £72,000 across those 30 years — compounding did the rest. The last decade alone added more than the first two combined.

The catch

Compounding works on debt too. A credit card at 20% APR doubles the balance in under four years if you only pay interest.

Try the maths

Play with our compound interest calculator. Then double the time and see what happens.