Compound interest

Compound interest, or the compound interest effect, is a fundamental financial concept. In addition to the amount originally invested, interest is also paid on the accrued income.

After each interest period, the investor receives credit interest. With savings or fixed-term deposit accounts, this usually happens once a year, while with bonds and dividends it can be more frequent, depending on the company's domicile. If the interest is not distributed but reinvested directly, it earns interest in the next interest period together with the deposited credit balance. Reinvesting the interest thus enables the interest to earn interest, known as compound interest.

For investors, the positive effect of compound interest is that capital accumulation accelerates from interest period to interest period. This happens because both the capital on which interest is paid and the interest income grow steadily. In this way, asset growth continuously gains momentum and follows an exponential logic.

With True Wealth's compound interest calculator, you can calculate how your assets will develop over time.