Compound Interest

With simple interest you earn the same amount on your original money every year. With compound interest, each year's gain is added to the balance, so the next year you earn interest on a slightly larger sum. Earning interest on your interest is the whole idea and it's why savings grow faster the longer they're left alone.

CHF 10,000 at 5% per year, nothing added after the first deposit, with and without compounding:

With compound interest the CHF 10,000 grows to CHF 16,288.95 after 10 years, CHF 26,532.98 after 20 and CHF 43,219.42 after 30. Simple interest pays the same CHF 500 every year and reaches CHF 15,000.00, CHF 20,000.00 and CHF 25,000.00. The gap widens even though the rate never changes: after 30 years, the extra CHF 18,219.42 is entirely interest earned on interest. At 5%, the money doubles about every 14 years, as the rule of 72 estimates.

The 5% is an example of an investment return, and real investments rise and fall from year to year. It isn't a savings rate: in August 2026, the savings rates Swiss banks published averaged 0.07%, according to the Swiss National Bank. At that rate, CHF 10,000 would earn about CHF 7 a year.

1. 1

   Earn interest

   Balance × rate. 10,000 × 5% = 500.

2. 2

   Add it to the balance

   The gain compounds next year, not just the principal. 10,000 + 500 = 10,500.

3. 3

   Repeat on the larger sum

   Each year's interest is a little bigger than the last. 10,500 × 5% = 525.

Three levers, in rough order of how much they matter over a long horizon:

This is why starting early beats waiting for a better return. CHF 10,000 at 5% for 30 years grows to CHF 43,219.42. Start ten years later at 6% and you have CHF 32,071.35 after 20 years. To catch up in those 20 years, you would need 7.59% a year.

Interest can be credited yearly, quarterly, or monthly. Compounding more often means interest starts earning its own interest a little sooner, so the final balance is slightly higher. The effect is real but small, the number of years matters far more than how often interest is added within each year.

The same maths works against you just as reliably:

• —Inflation compounds against your balance. A 5% return with 2% inflation grows what your money can buy by 2.94% a year, its real return.
• —Fees compound too: a yearly percentage, such as a fund's total expense ratio, quietly shrinks the balance every single year.
• —Debt runs the same curve in reverse. A credit-card balance compounds against you at rates far above what investments have earned on average.