Compound interest
Interest on interest: last year's gain earns a gain of its own this year.
Compound interest calculator
After 20 years you have 84,145 lei: 49,000 lei put in by you and 35,145 lei gained.
Put in by you Gain
Deposits go in at the start of each month, the return is constant, no taxes or costs. A calculation, not a promise.
What is compound interest?
Compound interest means that the interest you earn stays in the account and earns interest in turn. The first year pays only on the original sum; the second pays on the first year's gain too; and so on.
At first the difference is small. 1,000 lei at 5% a year becomes 1,050 after a year and 1,102.50 after two, because the second year adds 2.50 lei of interest on interest. Over 30 years the same rate turns 1,000 lei into almost 4,322. Without compounding, if you took the interest out every year, you would have 2,500.
The same mechanism works in reverse on debt: an expensive loan costs more the longer it runs. If you miss repayments, the balance grows by the interest and penalties in the contract, within legal limits.
The formula is amount × (1 + rate)^years. The part that matters is the exponent: time. That is why extra years are worth more than an extra percentage point.
1,000 lei at 5% a year: 1,629 after 10 years, 2,653 after 20, 4,322 after 30.
What is the difference between simple and compound interest?
With simple interest you always earn on the original sum. With compound interest you also earn on past gains. 1,000 lei at 5% a year becomes 2,500 lei in 30 years with simple interest and 4,322 with compound interest.
How do I calculate compound interest?
The formula is amount × (1 + rate)^years. With monthly contributions, each deposit grows separately for the months it has left. The calculator on this page does both.
What matters more, the rate or the time?
Both matter, but time is the exponent. At 5% a year a sum doubles in about 14 years, so 30 years gives four times the money, not twice what 16 years gives.
Related terms
This page explains mechanisms and shows what happened in the past. It does not recommend products, say what to buy, or take your situation into account.