Compound Interest Explained
Why the last decade of a savings plan usually produces more growth than the first two, and how to model it honestly.
2026-07-06 · 6 min read
Growth on growth
Simple interest pays on your original deposit. Compound interest pays on the deposit plus everything it has already earned, so the balance curve bends upward instead of running straight.
Time beats amount
A pound invested at 25 has forty years to compound; the same pound at 45 has twenty. At 7% the earlier pound ends up worth nearly four times the later one, for identical effort.
Model it honestly
Subtract fees and inflation from your assumed return before projecting. A 7% nominal return with 1% fees and 2.5% inflation is really about 3.5% in purchasing power.