Frequently Asked Questions

Interest is the price of borrowing money — or the reward for lending it. When a bank pays you 4.5% on a savings account, they're compensating you for letting them use your deposit. When you invest in a fund that returns 8% per year, companies and markets are rewarding you for the capital you've put at risk.

The twist that makes long-term planning so powerful is compounding: each year's interest earns its own interest the following year. This creates a snowball effect where the majority of your final balance comes not from the money you deposited, but from interest earned on interest. In a typical 30-year investment, the compounding effect can account for more than half of the total value — meaning your money literally does most of the heavy lifting for you.

Consider a concrete example: if you deposit $5,000 and add $150 per month at 6% annual interest, after 25 years you'll have approximately $91,000. Of that total, only $50,000 came from your pocket — the remaining $41,000 was generated entirely by compounding. The first few years feel slow, but by year 15 the interest snowball overtakes your contributions, and the final decade produces more growth than the first two decades combined.

That's exactly why the questions below keep circling back to one theme: time in the market beats timing the market. The earlier you start — even with modest amounts — the more compounding cycles work in your favor. Our compound interest calculator lets you visualize this effect year by year, so you can see the snowball grow in real time.