Compound Interest

Plain-English definition. Compound interest is interest calculated on the starting principal and on interest already added in earlier periods. The compounding frequency and the timing of deposits or withdrawals affect the result.

Savings example. A $10,000 starting balance at a constant nominal rate of 7% a year, compounded monthly for 30 years with no further deposits, grows to about $81,165. The example ignores fees, tax, inflation, bonus-rate conditions and rate changes. It is a mathematical scenario, not a return forecast.

Home loans are a different cash flow. Australian home-loan interest is commonly calculated daily on the outstanding balance and charged to the account periodically. A normal principal-and-interest repayment then covers interest and reduces principal. Long-term mortgage interest is driven by the balance, rate, term and repayment timing; it should not be explained as every day's interest automatically being added to principal and compounded the next day.

Use the Compound Interest Calculator for a constant-rate savings scenario. It models regular contributions at the end of each selected period. Use the Mortgage Repayment Calculator for an amortising home loan instead.

ASIC Moneysmart explains compound interest and publishes a compound interest calculator with its deposit-timing assumptions. Sources checked 7 September 2026.

This entry provides general information and illustrative arithmetic only. It is not a savings quote, investment forecast, loan statement or financial advice.

Last updated: 7 September 2026.