The one-line definition
Compound interest is when the interest you earn gets added to the principal, so each subsequent calculation is on a larger base. The result grows exponentially, not linearly.
A concrete example
Save €200/month at 5 % a year. After:
- 10 years: €31,056 (€7,056 of which is interest)
- 20 years: €82,207 (interest: €34,207)
- 30 years: €166,452 (interest: €94,452)
Contributions are constant, but interest grows disproportionately. That disproportion — the compounding effect — is what produces spectacular long-term results.
What breaks the effect
Three things: starting late, withdrawing along the way, fees. Every year of delay costs you the last year — and the last years are the best ones, because that's where compound interest produces the most.
Try it on our calculator
Open the compound interest calculator, plug in your numbers and watch the gap between monthly and annual compounding — usually a couple of percent over a long horizon.