The best compound interest accounts to grow your money

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Want to grow your money faster? A compound interest account can help you achieve your financial goals by boosting your savings faster. 

There are a few different types of compound interest accounts, each with its own advantages and disadvantages. The best account for you depends on your financial situation, so it’s important to understand their differences before deciding. 

Here are the most common types of compound interest accounts. 

High-yield savings accounts 

High-yield savings accounts provide higher interest rates than traditional savings accounts. Many top high-yield savings accounts are offering rates over 4.50%. You can more easily access your funds in a high-yield account, but there may be a monthly withdrawal limit. 

Online banks or credit unions often offer these accounts, and most are FDIC-insured up to $250,000 per person, per account. Unlike regular savings accounts, most high-yield accounts won’t charge monthly fees, though some may require you to maintain a minimum balance. 

Money market accounts 

Money market accounts combine the benefits of savings and checking accounts in exchange for a higher minimum balance. You’ll often earn a generous return on your money and get check-writing or debit card privileges. 

This option is ideal for earning compound interest if you meet the minimum balance requirements. The best money market accounts come with rates of 5.00% or higher.

Certificates of deposit (CD)

CDs offer fixed interest rates for a set term, typically ranging from three months to five years. By agreeing to lock up your money for the full term, you can generally earn a higher interest rate than you would with a traditional savings account. 

If you have a lump sum of cash you won’t need access to for a bit, a CD may be a good option. If you withdraw your money before the term ends, you’ll typically have to pay an early withdrawal penalty. Top CD rates range from 4.50% to over 5.00%, depending on the term.

Bonds

Bonds are debt securities issued by corporations or governments to raise capital. When you buy a bond, you essentially lend the issuer money in exchange for regular interest payments. Plus, you'll get your principal investment back once the bond matures. You can reinvest your monthly payments into more bonds to compound your interest. 

Bond interest rates vary based on the issuer's creditworthiness and the term length. The average annual return for the U.S. 10-year T-Bond in the past fifty years was 6.59%, according to a study by New York University. The average annual return for an investment-grade corporate bond was 8.82%.

Mutual funds

Mutual funds pool money from multiple investors to buy a group of stocks, bonds, or other assets. These funds offer compound interest through the reinvestment of dividends and capital gains. 

The average annual return for mutual funds varies based on the fund's investment strategy and market conditions. However, investing in the stock market often leads to higher returns as you often take on more risk. According to the same NYU study, the average annual return for the S&P 500 in the past 50 years was 12.54%. 

Real estate investment trusts (REITs)

Real estate investment trusts are companies that own income-generating real estate properties. This includes apartment complexes, shopping centers, and office buildings. 

REITs are required to distribute at least 90% of their taxable income to shareholders in the form of dividends. These dividends can be reinvested for compound growth. According to Nareit, the average annual total return for equity REITs was 12.04% in the past 50 years. 

The best compound interest savings accounts

EverBank Performance Savings 

• APY: 5.15%
• Compounding frequency: daily 
• Minimum opening deposit: $0
• Monthly fee: $0

EverBank Performance Savings comes with one of the most competitive rates on the market. It also stands out for its lack of monthly maintenance fees and minimum balance requirements. Regardless of your account balance, you’ll earn 5.15% on your money. 

This account also offers fee-free mobile check deposit and the ability to transfer funds from internal or external accounts to your Performance Savings account via the mobile app. Mobile deposits are capped at $50,000 a day. You can also deposit funds through a wire transfer without incurring a fee or at a physical branch. 

BMO Alto Online 6-month CD 

• APY: 5.15%
• Compounding frequency: daily
• Minimum opening deposit: $0
• Monthly fee: N/a

If you want to earn a higher rate without locking it up too long, consider this short-term CD from BMO Alto. There’s no minimum opening deposit or minimum balance requirement. Interest is paid out monthly. 

It’s easy to open an online CD with BMO Alto. Although all balances are eligible to earn interest, you must fund your account within 10 days to avoid closure. Early withdrawals are subject to a penalty of 90 days’ worth of interest. 

SoFi 

• APY: 4.60% 
• Compounding frequency: monthly 
• Minimum opening deposit: $0
• Monthly fee: $0

There’s a lot to love about the SoFi Checking and Savings Account. Beyond the attractive APY, this fee-free account comes with early direct deposit and a cash welcome bonus when you enroll in direct deposit.

You can take advantage of savings Vaults that make it easier to save for specific goals. You can also use the AutoSave feature to build your savings on autopilot. And if you enroll in the SoFi Insured Deposit Program, FDIC coverage increases to $2 million. 

When you open a SoFi online savings account, you automatically get a checking account that earns 0.50% APY. This account can also be managed via the mobile app alongside your savings account. Read our full review of SoFi here. 

CIT Bank Platinum Savings 

• APY: 5.05%
• Compounding frequency: daily 
• Minimum opening deposit: $100
• Monthly fee: $0

CIT Bank offers a fee-free opportunity to maximize your dollars if you carry a high balance. The Platinum Savings account pays 5.05% APY on balances of $5,000 or more (and 0.25% on all other amounts). 

It takes just five minutes to open an account online. You’ll need a deposit of at least $100, but there are no monthly maintenance fees or minimum balance requirements. If you don’t want to maintain a balance to earn higher interest, consider CIT Bank’s other savings accounts. You can read our full review here. 

What is compound interest? 

Compound interest is a term used to describe interest paid on interest. It’s calculated on both the initial principal and the accumulated interest from previous periods.

Compound interest allows your savings to grow exponentially over time, as each interest payment is added to your principal, forming a larger base for future interest calculations.

The amount you’ll earn also depends on the compounding frequency — daily, monthly, quarterly, or annually — and the length of time. 

Simple interest vs. compound interest 

To better understand compound interest, it's helpful to compare it to simple interest. Simple interest is calculated solely on the initial principal and does not compound over time. For example, if you invest $1,000 at a 5% annual simple interest rate, you would earn $50 in interest each year. After 10 years, your total balance would be $1,500 ($1,000 principal + $500 in total interest).

Compound interest is calculated on both the principal and the accumulated interest. Using the same example, if you invest $1,000 at a 5% daily compound interest rate, your balance would grow to $1,648.66 after 10 years. That's because each year, the interest earned is added to the principal, allowing you to earn interest on your interest.

How does compound interest work? 

The magic of compound interest lies in its ability to boost the growth of your savings over time. The more frequently interest is compounded, the faster your balance will grow. The basic formula for compound interest is: 
A = P(1 + r/n)^(nt)

Where:

• A = the future value of your investment
• P = the initial principal
• r = the annual interest rate (as a decimal)
• n = the number of times interest is compounded per year
• t = the number of years the money is invested

For example, let's say you invest $10,000 in an account offering a 6%, compounded monthly. After 20 years, your balance would grow to $33,102.40. Thanks to the power of compound interest, your initial investment would more than triple in value.

What to consider when picking a compound interest account 

When choosing a compound interest account, there are several key factors to consider:

• Interest rate: Look for accounts offering competitive interest rates to maximize earnings.
• Compounding frequency: The more frequently interest is compounded, the faster your savings will grow. Look for accounts that compound interest daily or monthly.
• Minimum balance requirements: Some accounts may require a minimum balance to earn the highest interest rate or avoid fees. Make sure you can meet these requirements.
• Transaction limits: Although frequent withdrawals minimize the benefit of compounding interest, you want easy access to your money if you don't have a solid emergency fund elsewhere. 
• Fees: Be aware of any fees associated with the account, such as monthly maintenance fees or transaction fees, which can eat into your earnings.
• Access to funds: Consider your liquidity needs when choosing an account. Some options, like CDs, may require you to lock up your money for a set period, while others, like money market accounts, offer more flexibility.

Should you open a compound interest account? 

Opening a compound interest account is an excellent way to grow your savings over time. You can watch your money multiply without having to actively manage your investments. 

Whether you're saving for a short-term goal, like an emergency fund, or a long-term goal, like retirement, compound interest accounts can help you reach your targets faster.

It’s important to consider your financial situation and goals when deciding which type of account to open. If you need easy access to your funds, a high-yield savings or money market account may be more appropriate than a CD or bond. If you have a longer investment horizon and a higher risk tolerance, investing in mutual funds or REITs may offer the potential for greater returns through compound interest.

The key to maximizing the benefits of compound interest is to start saving and investing as early as possible. The longer your money has to grow, the more powerful the compounding effects will be. By making regular contributions to your account and reinvesting your earnings over time, you can build a solid financial foundation. 

The bottom line 

A compound interest account can be a valuable addition to your financial arsenal if it aligns with your goals. It allows you to grow your money faster, and the interest earnings can add up over time. The top options here feature impressive rates and little or no fees, making them well worth considering. 

Editorial disclosure: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.