Compound interest

Compound interest, or the compound interest effect, is a fundamental financial concept whereby interest is paid not only on the amount originally invested, but also on the interest that has already accrued.

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

For investors, the compound interest effect has the positive effect of accelerating capital accumulation 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, the growth in assets 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.