How compound interest works

Name: How compound interest works
Uploaded: 2026-09-28
Duration: 1 min 6 s
Description: What happens to 1,000 dollars at 5 percent a year over 30 years, and why interest on interest adds up.

What happens to 1,000 dollars at 5 percent a year over 30 years, and why interest on interest adds up.

Vertical 9:16
Clean look

Transcript

You put $1,000 into a savings account that pays 5% a year. After one year, you have $1,050.

In the second year, you earn 5% on $1,050. So you also earn interest on last year’s interest. Now you have $1,102.50.

This is called compound interest. The interest is added to your money, and next year it earns interest too.

After 10 years, you have about $1,629. After 20 years, about $2,653. After 30 years, about $4,322.

If you only earned interest on the first $1,000, you would have $2,500 after 30 years.

The longer you leave the money, the faster it grows. That is why it helps to start early.