Compound interest

What is compound interest?

Compound interest is growth earned on both your original money and on the growth it has already produced. It is the reason long holding periods matter more than clever entry points.

Future value = Present value × (1 + r)^n

Written by: Suggested Investments Research Team
Content type: Reference definition
Published: 2026-09-13
Last reviewed: 2026-09-13

Why the curve bends

In the first years, most of your balance is money you contributed. Later, most of it is growth on growth. The turning point — where cumulative growth passes cumulative contributions — usually arrives well past the first decade, which is why patience is a mechanical requirement rather than a personality trait.

What changes the outcome most

Three inputs dominate: how much you contribute, how long you leave it invested, and what you pay in fees. Timing the market is not on that list, and no research model can substitute for time invested.

A worked example

$500 invested monthly for 25 years at a 7% assumed annual return contributes $150,000 and ends near $405,000 — roughly two thirds of the final balance is growth rather than contributions. That figure is arithmetic from the assumptions you choose, not a forecast.

The mistake people make

Assuming a smooth annual return. Real returns arrive unevenly, and a long flat stretch early on feels like failure while the mathematics is still working.

How we use it

Compounding is the reason our research is built around accumulation rather than trading. Our rankings answer where a new contribution may have the strongest long-term foundation; they are not a signal to sell what you already own.

Sources and methodology

Investor.gov investor education — U.S. Securities and Exchange CommissionPrimary source
Intelligent Accumulation methodology — Suggested InvestmentsPrimary source

Investing Glossary
Every investing term we use, defined once and in plain English — from compounding and drawdown to Form 13F and share dilution.
Dollar-cost averaging
Dollar-cost averaging means investing a fixed amount on a fixed schedule regardless of price. It removes the need to decide when to invest, and it buys more s
Free cash flow
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Expense ratio
An expense ratio is the annual percentage of your money a fund keeps to run itself. It is deducted from returns quietly, every year, whether the fund performs
Maximum drawdown
Maximum drawdown is the largest peak-to-trough fall an investment has suffered over a period. It measures the worst stretch an investor would have had to sit
Diversification
Diversification means owning enough different investments that no single failure can decide your outcome. It reduces the damage of being wrong about any one c

Educational information only. Nothing here is a recommendation to buy or sell any investment, and no research measurement removes the risk of loss.