Compound interest helps your money grow exponentially faster than it would if you were only earning interest on the amount of money you started with. Why? Because compound interest lets you earn interest on interest, so it gives your savings the chance to take on a life of its own.
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If you want to take advantage of compound interest, it can help to know how it works and which types of accounts let you harness its power. There are several different types of compound interest accounts and the best one for you depends on what kind of access you need to your funds, how much security you’d like and what rate you want to earn.
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Some of the best types of compound interest accounts are high-yield savings accounts (HYSAs), certificates of deposit (CDs) and money market accounts (MMAs). Below you can find our top three for each type of account.
High-yield savings account
A high-yield savings account gives you better-than-average interest rates on your money. There are no meaningful differences between a savings account and a high-yield savings account, so you should look at the account names interchangeably when comparing APYs.
As of April 2024, the average APY for all types of US savings accounts was 0.46%, according to the FDIC. However several high-yield savings accounts offered rates of 5.00% and higher. Many of the best rates are offered by online-only banks because they have much lower operating costs than traditional brick-and-mortar banks, allowing them to provide high APYs to attract customers.
See our article on the best high-yield savings accounts for the full ranking of accounts and more information about what to look for with a high-yield savings account.
UFB Direct High Yield Savings
Best for APY at all balance tiers
APY
5.25%
Monthly maintenance fee
$0
Minimum deposit requirement
$0
Why we picked it
UFB Direct is an online division of FDIC-insured Axos Bank. Its Secure Savings account pays an excellent 5.25% APY. There is no monthly fee, no minimum balance requirements and all balance tiers earn the top rate.
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You receive a complimentary ATM card that you can use at 91,000 ATMs nationwide. (Some ATMs even accept cash deposits.)
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Although UFB Direct has no physical branches, customer support is available 24/7 by phone. You can also access your account through the highly-rated Apple or Google app. The bank has mixed reviews on Trustpilot but a decent overall score of 3.2 out of 5 stars.
Pros
- Strong APY
- No minimum deposit required
- No monthly service fees
Cons
- No physical branches
- Small lineup of bank products and services
- No UFB Direct checking account to link to
Who should use it
UFB Direct offers one of the best high-yield savings rates if you’re comfortable banking online. With 24/7 customer support, you can contact the bank whenever it is most convenient.
Varo Savings Account
Best for automated savings tools
APY
5.00%
Monthly maintenance fee
$0
Minimum deposit requirement
$0
5/5
Why we picked it
The Varo Savings Account offers an APY of 3.00% APY, but you can earn 5.00% APY on balances up to $5,000 if you meet some requirements. To qualify for the 5.00% APY, you’ll need to have a Varo Bank Account and receive direct deposits of at least $1,000 per month. You’ll also need to end each month with a positive balance in both your Varo Bank Account and Savings Account.
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For those who have a hard time setting aside savings, Varo offers multiple automated savings tools:
- Save Your Change rounds up your purchases to the next dollar and transfers the change to your savings account.
- Save Your Pay lets you select an amount of your paycheck to automatically transfer into your savings account when it arrives by direct deposit.
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Varo has over 40,000 Allpoint ATMs nationwide, where you can withdraw your money free of charge. However, there is a $3.50 fee for using out-of-network ATMs.
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Although customer support hours by phone are limited, you can access your account with the highly rated mobile apps on Apple or Android.
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Customers also have access to the Varo Believe card, a secured charge card designed to help you raise your credit score. You may also qualify for quick cash advances of up to $250 (Varo charges a sliding flat fee depending on how much you borrow.)
Pros
- No monthly maintenance fee
- No monthly service fees
- Multiple automated savings tools
Cons
- Must meet requirements to earn the 5.00% rate, including a direct deposit of at least $1,000 each month
- Limited number of other products and services
- Fee for using out-of-network ATMs
Who should use it
Varo Savings Account is best for people who are willing to have a Varo Bank Account and can direct deposit at least $1,000 into their account each month. Before signing up for Varo, check if there’s an Allpoint ATM near you to avoid out-of-network ATM fees. It’s also ideal for anyone who will benefit from the automated savings tools.
Laurel Road High Yield Savings
Best for full banking experience
APY
5.15%
Monthly maintenance fee
$0
Minimum deposit requirement
$0
4.9/5
Why we picked it
Laurel Road is an FDIC-insured digital banking platform owned by KeyBank. Its High Yield Savings provides a competitive 5.15% APY with no monthly account fees or balance requirements. There is no minimum deposit needed to open the account.
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If you link your savings account to your Laurel Road checking account, it can provide some overdraft protection.
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Laurel Road’s customer service isn’t available on weekends; however, it offers extended support hours on weekdays. The bank’s mobile app has excellent ratings on Google Play and the Apple App Store.
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It also has a wider lineup of products, including a checking account, credit card and loans.
Pros
- Top APY is available on all balances
- No monthly service fee
- No minimum deposit requirement
Cons
- No customer service on weekends
- No physical branches
- No ATM access
Who should use it
Laurel Road may be a solid option if you want a savings account with a high APY, no minimum balance or deposit requirements and no balance caps.
Certificate of deposit
Certificates of deposit, or CDs, are a type of savings account designed to help grow your savings faster than savings or money market accounts. CD interest rates are generally higher than standard savings accounts, but CDs can lack flexibility.
A CD pays a fixed rate over a set period called a term, but withdrawing cash before the end of the term — the CD’s maturity date — can result in a penalty fee. A term can be anywhere from a few months to several years.
See our article on the best CD accounts for the full ranking of accounts and more information about what to look for with a CD account.
Synchrony CD
Best for compound interest schedule
APY
4.09%
Monthly maintenance fee
$0
Minimum deposit requirement
Daily
5/5
Why we picked it
Synchrony Bank offers a wide variety of CD terms from short-term 3-month CDs to accounts that mature after five years. You’ll find more than a dozen options to choose from.
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Synchrony also provides solutions for those seeking no-penalty and bump-up CDs, although only one term is available for each. IRA CDs, a niche type of CD designed to help grow retirement savings, are also offered.
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Synchrony’s standard CD account stands out because of no minimum deposit requirement, though with an average APY of 4.09% across terms, you can find higher rates elsewhere.
Pros
- Diverse range of terms
- $0 minimum balance
- Many other savings and investment accounts available
Cons
- Low Trustpilot ratings
- Lower APY than other accounts on this list
- Some account management only available by phone
Who should use it
Looking for a specialized CD term that you haven’t found at other banks? You may have better luck with Synchrony. Standard CD terms range from three months to five years; additional options exist for no-penalty, bump-up, and IRA CDs.
Marcus by Goldman Sachs High Yield CD
Best for 6-year APY
APY
4.39%
Monthly maintenance fee
$500
Minimum deposit requirement
Daily
4.9/5
Why we picked it
Backed by one of the largest banks in the United States, Marcus by Goldman Sachs offers an impressive selection of CD accounts.
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Traditional CD terms range from six months to six years; additional options include no-penalty CDs, allowing you to withdraw funds at any time with no fees, and rate bump CDs, which provide the option to raise your APY if rates go up before the maturity date.
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Marcus by Goldman Sachs also honors a rate match for 10 days following account opening. If rates increase within this period, their rate guarantee ensures you’ll be able to take advantage of the higher rate.
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The minimum balance to open a Marcus by Goldman Sachs High Yield CD account is $500, which is fairly low compared to opening deposit requirements at other banks.
Pros
- Wide range of terms available
- 10-day rate guarantee
- Strong 6-year CD APY
Cons
- No brick-and-mortar branches
- $500 minimum balance
- No checking accounts available
Who should use it
If liquidity issues are the only barrier standing between you and a CD account, you may be interested in the flexibility offered by Marcus by Goldman Sachs. From short-term CDs starting at six months to long-term CDs at six years, there’s an option for most investors.
Barclays Online CD
Best for no minimum opening deposit
APY
4.22%
Monthly maintenance fee
$0
Minimum deposit requirement
Daily
4.9/5
Why we picked it
Barclays is the online-only branch backed by the British bank Barclays, meaning the Barclays Online CD accounts are FDIC-insured.
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The main draws of this account are that it offers solid rates and has no minimum opening deposit, making this an excellent option for low-budget investors or those looking to get started.
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The account offers terms from six to 60 months and interest compounds daily.
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Note that Barclays does not have any physical locations in the U.S. and customer support is limited to phone.
Pros
- No minimum deposit
- Strong app ratings
- Above average rates
Cons
- Lacks physical branches
- No email or chat support
- Low Trustpilot ratings
Who should use it
If you’re just getting started with CDs or have a low budget to work with, the Barclays Online CD is a great place to start. Their no-frills CDs offer above-average rates without the minimum deposit requirements of other banks.
Money market account
A money market account functions like a savings account. You deposit your money with a bank or credit union, and the financial institution will hold on to it until you need it.
But, money market accounts have some checking account traits, too. With some money market accounts, you can write checks and make withdrawals with your debit card at an ATM. Your bank or credit union might limit the number of transactions you can make by debit card, check or transfer.
See our article on the best money market accounts for the full ranking of accounts and more information about what to look for with a money market account.
First Foundation Bank Online Money Market
Best for no monthly fees
APY
4.90%
Monthly maintenance fee
$0
Minimum deposit requirement
$1,000
5/5
Why we picked it
First Foundation Bank doesn’t have the name recognition of some other banks on our list, but the Texas-based financial institution has been around since 2007. The bank has $13.9 billion in assets as of March 2023 and is FDIC-insured, giving potential customers peace of mind should the bank unexpectedly fail.
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The money market account at First Foundation is easy to open online, and there’s no minimum balance requirement to avoid a monthly fee.
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If you prefer to bank in person, First Foundation Bank does offer 31 branches scattered across five states (California, Hawaii, Nevada, Texas and Florida).
Pros
- $0 monthly fee
- 24/7 customer service
- Branch locations in some states
Cons
- $20 excess transaction fee
- $1,000 minimum opening balance
- Wire transfer fees
Who should use it
This account is best for those who don’t plan to make many regular transactions because there’s a $20 excess transaction fee after six transactions in a statement cycle.
Redneck Bank Mega Money Market
Best for APY on low balances
APY
4.90%
Monthly maintenance fee
$0
Minimum deposit requirement
$500
4.8/5
Why we picked it
Redneck Bank is the online banking division of All America Bank, which was founded in Mustang, Oklahoma, in 1969 and is FDIC-insured. The bank also offers a high-interest checking account with a 5.15% APY.
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The money market account offers a strong 4.90% APY on balances up to $100,000 (and only 0.50% APY over $100,000), along with no monthly maintenance fees, a debit card and check-writing privileges.
Pros
- High 4.90% APY
- No maintenance fee
- Checking accounts with 5.15% APY also available
Cons
- Customer service only available during regular business hours
- High APY only on balances up to $100,000 (0.50% APY on balances over $100,000)
- Below average Apple and Google app ratings
Who should use it
Redneck Bank is a good option for those comfortable with online banking and with balances less than $100,000 so they can take advantage of the excellent APY.
Ally Bank Money Market Account
Best for no minimum deposit requirement
APY
4.20%
Monthly maintenance fee
$0
Minimum deposit requirement
$0
4.8/5
Why we picked it
Ally Bank has big name recognition among online banks, but its history goes back much farther than the internet era. Ally opened in 1919 as GMAC, a division of General Motors, to help dealers build their inventory and has evolved through the years, giving it longevity and stability. Today, Ally is FDIC-insured.
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Ally’s money market account has no minimum balance requirement to avoid fees and no minimum deposit, although you will pay a $10 fee for excess transactions after six in a statement cycle.
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With your Ally money market account, you can make unlimited withdrawals at one of 43,000-plus Allpoint ATMs at no cost. Ally will reimburse you up to $10 per statement cycle if you use a non-Allpoint ATM that charges fees.
Pros
- $0 minimum deposit
- $0 monthly fee
- 24/7 customer service
Cons
- APY lower than some on this list
- Low Trustpilot rating
- $10 excess transaction fee
Who should use it
This account is ideal for someone who doesn’t have much money to deposit or doesn’t want to be locked into a minimum balance and is willing to earn a lower APY (4.20%) than other accounts on this list for that flexibility. You should also be comfortable with online banking since Ally has no physical locations.
What is compound interest?
Compound interest is a phenomenon that lets you earn interest on interest you already earned, and it can be illustrated with some basic math.
Imagine you have $100 invested, and you show an 8% return after the first year, leaving you with $108. You maintain the $108 invested in the following year and earn an 8% return again. Because of compound interest, you would earn 8% on $108 and end the second year with $116.64 in your account — and so on.
After 30 years, you would have $1,006.27. That may not seem like a ton, but it means your initial investment would have grown 10 fold. If the interest didn’t compound, you’d only have $340 after 30 years.
“Compounding interest allows it to grow over time, and take on more significance, much like a snowball rolling downhill,” said Sameer Samana, a chartered financial analyst with the Wells Fargo Investment Institute.
“Compound interest is where you earn interest on interest,” he said. “Simple is where you earn interest on just the initial investment.”
How to earn compound interest
Compound interest is one of those situations where you need money to make money. By putting down some cash in one of the best compound interest investments, you can start earning interest that will one day earn interest on itself.
Another step to earning compound interest is investing your money and leaving it there. The power of compound interest diminishes if you’re taking withdrawals from your account or selling the underlying investments that earn interest in the first place.
“With compound interest, every dollar you save works harder and grows faster,” said financial advisor Jeff Rose of Good Financial Cents, adding that you need to leave the money to grow for the best results.
For example, saving $200 per month for 30 years in a compound interest account means you will have deposited $72,000 over that timeline. With a 10% return, however, that $72,000 investment turns into well over $394,000.
The rule of 72 for predicting compound interest
Compound interest may be the secret sauce that gets you to retirement on or ahead of schedule. But how can you forecast what your returns will look like years into the future? Many people use compound interest calculators, historical stock market returns or both to estimate what their investments might be worth decades from now, but even that’s just a guess since no one has a crystal ball — and since past returns never guarantee future results.
That’s where the “rule of 72” comes into play. This simple formula can help you predict how long it might take for your investment to double in value. While it too is just a general “back of the napkin” calculation, the rule of 72 is an easy way to quickly estimate the results of compound interest.
How does the rule of 72 work? All you have to do is take the number 72 and divide it by the rate of return you anticipate an investment to achieve. For example, if you are keeping money in a high-yield savings product and you believe you’ll earn 5.00% APY for the foreseeable future, you would divide 72 by 5 to get 14.4. This means your investment would take 14.4 years to double in value with this fixed return. If you started with $100,000, you would have $200,000 after 14.4 years.
If you believe you’ll earn a higher rate than that through stock market investments, you’ll ratchet up your estimated return. Let’s say you have an index fund that tracks the S&P 500 and you decide to use the historical return for this index for the last 20 years (approximately 9.693%). If you take the number 72 and divide it by 9.693, the rule of 72 says your investment will double in just over 7.42 years.
If you had $500,000 invested and used this metric to predict your returns, the rule of 72 says you’ll have approximately $1 million in just under 7.5 years (7.42 years).
Best compound interest investments
All kinds of compound interest accounts exist, but some may work better for you based on your goals. For example, you’ll want to know how soon you might need the money before you decide, and you’ll need to consider your complete investment strategy to find the right fit.
High-yield savings accounts
High-yield savings accounts are popular for compound interest when rates are attractive, and it’s easy to see why. These accounts often come with low minimum balance requirements and no monthly fees, and they earn interest on deposits until you take the money out.
Some of the best high-yield savings for compound interest come from this type of account, but you’ll want to make sure to compare all your options before you get started.
Also, remember that the best online banks usually offer high-yield savings accounts with the best rates and no hidden fees. These accounts also come with standard Federal Deposit Insurance Corp. (FDIC) insurance or National Credit Union Administration (NCUA) insurance as long as the institution is federally insured.
Money market accounts
A money market account is a type of bank account offered by traditional banks and credit unions. This type of account is similar to a savings account but tends to come with check-writing privileges and may also come with a debit card.
Money market accounts are also protected by FDIC insurance from traditional banks or NCUA insurance if you bank with a credit union. Money market rates can be competitive and make it that much easier to earn compound interest on your deposits.
Certificates of deposit (CDs)
CDs are a type of savings account that requires you to “lock up” a certain amount of money for a set period of time (usually 3 to 60 months, but potentially longer). You’ll also lock your interest rate in during that time, so you can count on earning a certain amount of interest during your CD’s term.
You can earn compound interest with CDs by letting them mature and using the proceeds to buy another CD with a higher amount. CDs also come with FDIC insurance.
However, you’ll typically have to pay a penalty if you need to access the funds in your CD early. An exception is when you shop around and find a type of CD called a no-penalty CD that doesn’t charge any fees for early access.
Mutual funds
A mutual fund is a type of investment that pools money from multiple investors to purchase securities like stocks and bonds. This means that investors in mutual funds can have a stake in multiple investments at once, which is good news when it comes to diversification.
Depending on the underlying investments, mutual fund shares don’t necessarily earn compound interest, but they do have compound growth. Also, remember that mutual funds can (and often do) lose money in the short term.
Bonds
Bonds are a type of debt you can purchase as an investment. Similar to an IOU, this type of investment earns a regular return that can be compounded the longer you hold on.
There are various types of bonds to consider for compound interest, including corporate bonds, municipal bonds and U.S. treasuries. Government bonds like municipal bonds and U.S. treasuries are typically considered the safest since state, local and the federal government are the least likely to default on their debts.
Real estate investment trusts (REITs)
A real estate investment trust (REIT) is a type of investment that lets individuals put their money into large-scale real estate projects without having to deal with physical property. Similar to a mutual fund, this type of investment lets you buy shares and own a piece of the action and profits. And when the value of a REIT goes up over time, this type of investment earns compound interest that has the potential to snowball.
REITs typically purchase real estate to produce income, and they oversee these projects and manage them or hire third parties to help manage them. Properties held in REITs can include apartment buildings, commercial real estate holdings, hotels, self-storage facilities and more.
| Best for | Type of returns | FDIC or NCUA insurance | Minimum investment amounts | |
|---|---|---|---|---|
High-yield savings accounts | Short-term savings; easy account access | Variable rates that fluctuate based on market conditions | Yes | Varies (can be as low as $0) |
Money market accounts | Short-term savings; easy account access | Variable rates that fluctuate based on market conditions | Yes | Varies (can be as low as $0) |
Certificates of deposit (CDs) | Short-term to mid-term savings; guaranteed rate | Fixed rates that last for the duration of the CD term | Yes | Varies (often $500 or more) |
Mutual funds | Long-term investing | Returns based on market conditions | No | Varies (often $500 to $3,000) |
Bonds | Long-term investing | Can be fixed or variable returns based on market conditions | No | Varies (may be as low as $25) |
Real estate investment trusts (REITs) | Long-term investing | Returns based on market conditions | No | Varies (often $1,000 to $2,500) |
How to earn compound interest
While the list above includes some of the best compound interest accounts, keep in mind that you can earn interest that compounds on many other types of investments.
Here’s what you need to do to start earning compound interest today.
Step 1: Pick an account. Compare the best compound interest accounts available to find the right fit for your investing goals and tolerance for risk. For example, you’re guaranteed to earn interest that compounds in a high-yield savings account, whereas investing in mutual funds, bonds or other types of accounts that have the potential to grow can also result in losing money.
Step 2: Open an account. Take steps to open an account that earns compound interest next, but be aware that the steps required to open an account vary. For example, you can easily open a high-yield savings account or a CD online by providing some basic personal information and your Social Security number (SSN).
Step 3: Invest some money. You need to invest some money if you want to earn compound interest, and the minimum amount required to invest varies by account. For example, some CDs require a starting deposit up to $1,000 or more. You may also need a minimum amount to invest in mutual funds or individual stocks with certain investing platforms.
Step 4: Continue investing. You have the potential to earn compound interest by investing an initial sum of money. However, your potential for growth compounds even more if you keep investing money all along.
Step 5: Leave your money to grow. Most importantly, leave your money to grow and compound and resist the urge to sell your investments or cash your account out. Compound interest becomes more powerful over time due to the nature of how it works.
We receive compensation from our partners for Featured Offer placements, which impacts how and where their offer is displayed.
Featured Offer
UFB Direct High Yield Savings
APY Annual Percentage Yield
5.25%
Monthly maintenance fee
$0
Minimum deposit requirement
$0
Frequently asked questions (FAQs)
Compound interest can be helpful for early retirement when someone has the foresight to begin investing for the long haul early in adulthood. After all, investing early gives compound interest more time to work.
How compound interest is taxed depends on the type of investing that has taken place. For example, compound interest earned on individual stocks, mutual funds and bonds isn’t taxed until the investment is sold and a gain is realized. With a high-yield savings account or CD, however, investors have to pay taxes on interest for the year it was earned.
Some compound interest accounts have the potential for losses, whereas others do not. For example, you cannot lose money with a high-yield savings account or CD, but you can lose money with investments such as individual stocks, mutual funds, bonds and other more volatile investments.
Compound interest is typically used for retirement savings. That’s because money kept in retirement accounts like 401(k)s and IRAs has a lengthy timeline for compounding that helps it grow.
Ultimately, retiring becomes easier when you start saving for it as early in your career as possible. For compound interest to do its job, it needs time more than anything else.
Additional reporting by Vance Cariaga, Lisa Bernardi and Jami Farkas
