Compound interest is interest earned on top of interest already earned. As interest is credited it is added to the principal, and the larger balance then earns interest in the next period — so the amount of interest grows each period even when the rate stays the same.
Key takeaways
- Compound interest is interest earned on interest already earned, not just on the original principal.
- The longer money is left to compound, the larger the effect, because the earliest returns are reinvested for the longest time.
- The Rule of 72 estimates how long a balance takes to double: divide 72 by the interest rate. At 4% p.a., that is about 18 years.
- Compounding works in the same way on debt, so unpaid balances that carry interest grow faster the longer they are left outstanding.
- How often interest is compounded — yearly, monthly or daily — changes the outcome, because more frequent compounding adds interest to the base sooner.
See how this applies to your own figures.
Compound Interest Calculator →How compounding builds up
With compound interest, each period’s interest is added to the balance and then earns interest itself. MoneySense illustrates this with SGD 100 earning 4% a year: the balance is SGD 104 after one year, SGD 108.16 after two, SGD 112.49 after three and SGD 116.99 after four. The interest earned rises each year — from SGD 4.00 to SGD 4.50 — even though the rate never changes, because the base keeps growing.
The Rule of 72
The Rule of 72 is a shortcut for estimating how long a balance takes to double at a given compound rate: divide 72 by the rate. At 4% p.a., 72 divided by 4 gives about 18 years. It is an approximation rather than an exact calculation, but it is close enough to compare rates quickly.
Compounding on debt
The same mechanism applies to money owed. Where a balance carries interest that is added back to the amount outstanding, the debt grows on the same curve as savings do — faster the longer it runs. This is why MoneySense treats compounding as something that can work in either direction.
Compounding frequency
Compounding frequency describes how often accrued interest is added to the balance. Yearly compounding adds interest once a year; monthly or daily compounding adds it sooner, so the base that earns interest grows earlier. Two accounts quoting the same nominal rate can therefore end up at different balances if they compound at different frequencies.
Key compound interest figures
| Item | Figure |
|---|---|
| Interest base | Principal plus interest already earned |
| Rule of 72 at 4% p.a. | About 18 years to double |
| SGD 100 at 4% compounded yearly, after 1 year | SGD 104.00 |
| SGD 100 at 4% compounded yearly, after 4 years | SGD 116.99 |
Figures as at 2026. Source: MoneySense.
Worked example
MoneySense illustrates compounding with SGD 100 earning 4% a year. Year one adds SGD 4.00 to give SGD 104. Year two earns 4% on SGD 104, adding SGD 4.16 to give SGD 108.16. By the end of year four the balance is SGD 116.99, with that year’s interest at SGD 4.50 rather than SGD 4.00.
Related terms
All Singapore glossary terms →Related calculator
Work out how a balance grows over time at a given compound rate and contribution.
This page is provided for educational and informational purposes only. It does not constitute financial advice. All figures and worked examples are estimates for illustrative purposes, are subject to change, and do not reflect any individual’s circumstances. Always refer to MoneySense and seek independent professional advice before making any financial decisions.