Question 1

What is compound interest?

Accepted Answer

Compound interest is interest earned on both your original deposit and on the interest that deposit has already accumulated. Unlike simple interest, which only ever applies to the original amount, compound interest means your balance grows faster each year because the base it's calculated on keeps increasing.

Question 2

How is compound interest calculated?

Accepted Answer

For a lump sum compounding annually, the formula is A = P(1 + r)^t, where P is the principal, r is the annual interest rate, and t is the number of years. For regular monthly contributions, the calculator compounds monthly and adds each new contribution to the growing balance before applying the next month's interest.

Question 3

What's the difference between compound interest and simple interest?

Accepted Answer

Simple interest is calculated only on the original principal, so it grows in a straight line. Compound interest is calculated on the principal plus all interest earned so far, so it grows on a curve that gets steeper over time. Over short periods the difference is small; over 10+ years it becomes significant.

Question 4

Does this calculator account for South African tax on interest?

Accepted Answer

No. This calculator shows gross investment growth before tax. In South Africa, interest income is taxed (with an annual exemption — R23,800 for individuals under 65, R34,500 for 65 and older, as of the 2024/2025 tax year), and a tax-free savings account or retirement product may shelter growth differently. Factor your own tax position in separately.

Question 5

Is a higher interest rate or more time more important for growth?

Accepted Answer

Time generally has the bigger effect, because compounding needs periods to multiply through. Doubling your investment horizon from 10 to 20 years usually grows your final amount by far more than a 1–2 percentage point increase in rate over the same period. Try both adjustments in the calculator above to see which moves your result more.