Compound interest earns interest on interest
Simple interest only pays on what you put in. Compound interest adds the interest you have earned back to the balance, so the next period earns on that too. The longer the time, the bigger the gap.
Monthly vs. yearly compounding
Monthly compounding adds interest every month; yearly adds it once a year. At the same annual rate, monthly compounding grows a little faster.
How it is calculated
- Monthly contributions are made at the end of each month.
- Figures are before tax and fees.
- Real savings and investment returns will differ.