ELI5: compound interest

high confidence

March 26, 2026finance

// explanation

// eli5Imagine you have a piggy bank with $100. Every year, it grows by 5% because you're earning interest. But here's the cool part: the next year, you don't just earn 5% on your original $100—you earn 5% on the $100 PLUS the interest you already made! [2][4][5] It's like your money is making babies, and those babies make babies too. That's compound interest—earning interest on your interest.

// sources

[1]Compound Interest Calculator | Investor.gov

Compound Interest Calculator. Determine how much your money can grow using the power of compound interest.

[2]Compound interest - Wikipedia

Compound interest is interest accumulated from a principal sum and previously accumulated interest. It is the result of reinvesting or retaining interest.

[3]Compound Interest: Chemistry infographics

Eye-catching infographics about everyday chemistry.

[4]What is compound interest? | Investor.gov

Compound interest is the interest you earn on interest. This can be illustrated by using basic math: if you have $100 and it earns 5% interest each year, you' ...

[5]How does compound interest work?

Oct 19, 2023 ... Compound interest is when you earn interest on both the money you've saved and the interest you earn.

[6]Compound Interest Explained in One Minutevideo

Video by One Minute Economics