Do banks still offer compound interest?

Yes. Many banks offer savings accounts with interest rates of 4% or more. If your bank doesn't offer a high interest rate, it's likely worth opening a new account at a bank that does. You can also find CDs with similar yields, which would allow you to lock in a higher interest rate for longer.

How do I open a compound interest account?

Opening an account that earns compound interest is as simple as going to your preferred bank and providing the information needed to open a savings or money market account. The bank may also offer CDs. Then, you can simply send money from your current financial institution to your new account.

Is a Roth IRA a compound interest account?

No. A Roth IRA is a tax-advantaged retirement savings account. You can invest in vehicles, such as a money market fund or CD, that earn compound interest inside a Roth IRA.

What is the best account for compound interest?

The best account for compound interest depends on your goals. If you want flexibility, a savings account at a bank with a good interest rate will do. If you want to maximize your interest rate, look at buying a certificate of deposit. If you want some tax advantages, look at savings bonds.

How much is $10,000 compound interest for 10 years?

That depends on your interest rate. At a 3% interest rate, $10,000 will grow to about $13,439. At a 5% rate, it climbs to $16,289. And at 10%, you'd end up with $25,937.

Which Accounts Earn Compound Interest?

Compound interest has been called the eighth wonder of the world.

By Adam Levy – Updated May 1, 2026 at 12:10 PM EST | Fact-checked by Margo Winton Parodi

Key Points

Compound interest grows your investment as returns reinvest and generate additional earnings.
Opening savings or money market accounts early optimizes the benefits from compounding.
Diverse investments like REITs and dividend stocks can compound returns similarly.

Compound interest is undoubtedly the most important concept to understand when building wealth for the long term. Here's a closer look at how compound interest accounts work.

Compound Interest

Compound interest is what you get when you reinvest your earnings, which then also earn interest.

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How compound interest works

When you put money in an account that pays interest, the interest payment stays in the account. As a result, the amount earning interest grows with each new interest payment.

It's a relatively simple concept, but one with mind-blowing possibilities. The longer you let your investments sit, the more rapidly they grow. Consider a single $1,000 investment growing at 10% annually:

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An example of how interest compounds on a $1,000 investment growing at 10% annually. — Image source: The Motley Fool.

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Notice that over the first five years, the $1,000 investment grows by $611. But decades later, without any additional investment, that sum is growing by tens of thousands of dollars over the same number of years.

Now, imagine what would happen if you were to start with $5,000 or $10,000, keep contributing more money to your account regularly, and make smart investment choices to increase your returns.

Simple interest versus compound interest

Compound interest includes interest earned on previously generated interest. Simple interest is just the interest rate multiplied by the investment or principal amount.

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Interest Rate

An interest rate is the cost of borrowing money or the premium you get for lending money. Learn how interest rates affect the economy.

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Simple interest is often used in a loan or bond context where the interest is the same every period and there is no compounding. Compound interest is used in investment and savings contexts.

The simple interest formula is:

A = P(1 + R * T)

This means the account value (A) is equal to the original investment amount (P) times 1 plus the rate (R) multiplied by the time (T).

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Compound interest formula

Let's go over the compound interest formula and define each variable.

P(1 + R/N)^(N*T) = A

Principal: P is the principal balance at the start of the investment. If you use a spreadsheet or a financial calculator to calculate interest, the principal is also known as the present value.
Rate: R is the interest rate earned on the investment.
Number: N is the number of times interest is compounded per period. For example, many savings accounts compound monthly but have an annual interest rate. In that case, N equals 12.
Time periods: T is the number of time periods.
Account value: A is the calculated account value. This variable is also known as future value.

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Savings Account

A savings account is an account that earns interest with a financial institution.

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Let's say you invested $10,000 in a savings account that pays 5% interest, compounded monthly. After five years, you would calculate the savings amount like this:

$10,000(1+0.05/12)^(12*5) = $12,833.59

Which types of accounts offer compound interest?

When it comes to investing strategies, you have several options for taking advantage of compound interest to build wealth.

Savings accounts: Banks lend out the cash you put into a savings account and pay you interest in exchange for not withdrawing the funds. Savings accounts that compound daily, as opposed to weekly or monthly, are the best because they increase your balance faster. You can open a savings account with any local or online bank.

Money market accounts: These are almost the same as savings accounts except they allow you to write checks and make ATM withdrawals. Money market accounts often pay slightly higher interest rates than savings accounts do. However, most money market accounts limit your monthly transactions, and some charge a fee if your balance falls below a certain amount.

Certificate of deposit (CD): A CD requires you to lock your money up with a bank for a specified time (typically six months to five years). In exchange, you'll get a guaranteed interest rate on your money. The interest payments accrue in the account, compounding over the life of the CD.

Savings bonds: Both the Series EE and Series I savings bonds issued by the U.S. Treasury earn interest monthly. That interest compounds every six months, meaning the interest earned over the previous six months is automatically added to the bond's principal value and starts earning interest.

Generally speaking, if you stay within Federal Deposit Insurance Corp. (FDIC) limits, both savings and money market accounts are extremely safe options. They became even more attractive when interest rates rose quickly in 2022 and 2023, though rates have cooled off a bit since then.

To profit significantly from compounding interest, it's important to diversify your money with different types of accounts and investments.

Features to look for in compound interest accounts

There are a few factors to consider when looking at various accounts and account types.

Interest rate: This will be near the top of your priority list. Higher interest rates are usually better. However, savings accounts undergo periodic interest rate adjustments, and money market accounts are susceptible to market changes. A CD or savings bond guarantees a steady interest rate for the life of the security.
Fees: If you put your money in an account or vehicle with high fees, you could completely erode the value of compound interest. Be aware of monthly fees on savings accounts or other penalties you may encounter. Additionally, you'll want to review early redemption fees on CDs.
Minimum deposit: Be sure you can meet the minimum deposit or balance requirements for the account you're considering.
Compounding frequency: All things being equal, an account that compounds your interest more frequently will result in you earning more money over time. That's because your interest payments start earning their own interest sooner.
Tax treatment: You may want to consider when your interest is taxed. In a savings account or money market account, you'll pay taxes on interest when it's paid. You'll pay taxes on interest earned from a CD in the year it's earned, even if you haven't redeemed it. A savings bond, however, won't have any tax liability until it's redeemed, and you won't pay any state or local taxes on it.

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Investments that can compound your money faster

While compound interest can provide consistent and safe returns for investors, you can get better returns over the long run by investing in other assets. In particular, dividend stocks and real estate investment trusts (REITs) offer consistent cash flow while providing additional upside in capital appreciation.

Dividend stocks

Stocks that pay dividends compound similarly to compound interest if you reinvest the dividends. You can instruct your brokerage to automatically reinvest all dividend payments you receive and buy more shares.

The risk, however, is that the share price will decline by more than the dividends received. A good dividend stock will, over the long run, provide both capital appreciation and a bigger dividend payment.

Real estate investment trusts

A REIT is an entity that holds a portfolio of real estate or real estate loans. Either strategy can produce consistent cash flow, which a REIT is required to pass on to its shareholders. That means shareholders receive sizable distribution checks every year and can reinvest them in the REIT to compound over time.

The power of compound interest

Compound interest can turn meager investments into wealth over time, especially if you start investing as soon as possible and stay invested. The earlier you start investing, the more time you have for interest to compound.

The $1,000 investment in the example above increased by $983 from the fifth year to the 10th year and by $7,064 from year 25 to year 30. The longer you wait to start investing, the older you will be when you reach year 30.

The bottom line on compound interest accounts

Staying invested is key to maximizing the effects of compound interest. If you're constantly moving or withdrawing your money, you lose out on a lot of potential compounding.

There are plenty of good reasons to withdraw your savings, though. You could have reached your savings goal and now need to spend the cash. Or you could be moving from a compound interest account to a riskier investment, like stocks or real estate, which have more attractive return potential.

But heed Charlie Munger's wisdom: "The first rule of compounding is to never interrupt it unnecessarily."

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Compounding interest FAQ

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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Accounts That Earn Compounding Interest

Compound interest has been called the eighth wonder of the world.