What Is Compound Interest?
There are key differences between compound interest vs. simple interest. Simple interest is the interest that accrues on an initial amount of money deposited in a savings account (aka the principal). If you multiply the principal by the interest rate earned on the money over a year, you get the simple interest amount. If you deposited $1,000 in a savings account that has an interest rate of 1%, in a year you would earn $10 in simple interest.
By comparison, compound interest is a method in which interest is added to the principal and interest is earned on the principal plus that added interest. For example, if you deposited $1,000 in a savings account and it earned $10 of interest in the first month, you’d have $1,010 in the account. (That’s the same amount of money it took you a full year to earn with simple interest.) For the next month you would earn interest on that new higher amount of money. As your savings continued to grow monthly, you would be earning interest on the new higher amounts.
With compound interest, your money can grow faster over time. And the sooner you begin saving with compound interest, the longer you can benefit.
Dive Deeper: Simple vs Compound Interest
Compound Interest Formula
There is a specific formula to determine compound interest. The formula is:
A = P(1 + rn)n*t
Where:
• A represents the final amount of money you’ll get.
• P stands for the principal, or original amount deposited.
• r is the interest rate expressed as a decimal, such as 0.3 for 3% and 0.5 for 5%.
• n is the number of times the interest compounds each year.
• t is the number of years the interest will be compounding.
How often interest gets compounded (the “n” above) is instrumental. If the interest is compounded monthly instead of annually, for example, your savings may grow much faster. That’s because the more often your money compounds, generally, the more potential it has to grow.
Compound Interest Example Calculation
To calculate compound interest, you can use the compound interest formula above.
The formula is typically used to calculate compound interest based on the principal (the amount of money you initially deposited), the interest rate, number of times the interest compounds per year, and the length of time the interest will be compounding.
To see how compound interest works, in the example below, $5,000 is deposited in a savings account in which the 5% interest is compounded monthly for 10 years. Here’s what that looks like:
| Year |
Account Balance |
Interest Earned (5%) |
New Balance |
| 1 |
$5,000.00 |
$255.81 |
$5,255.81 |
| 2 |
$5,255.81 |
$268.90 |
$5,524.71 |
| 3 |
$5,524.71 |
$282.65 |
$5,807.36 |
| 4 |
$5,807.36 |
$297.12 |
$6,104.48 |
| 5 |
$6,104.48 |
$312.32 |
$6,416.79 |
| 6 |
$6,416.79 |
$328.30 |
$6,745.09 |
| 7 |
$6,745.09 |
$345.09 |
$7,090.18 |
| 8 |
$7,090.18 |
$362.75 |
$7,452.93 |
| 9 |
$7,452.93 |
$381.31 |
$7,834.23 |
| 10 |
$7,834.23 |
$400.81 |
$8,235.05 |
At the end of 10 years, your savings will be worth $8,235.05 — thanks to the $3,235.05 of compound interest you earned.
As you can see, the amounts can add up quickly. You can use a compound interest calculator to plug in different initial savings amounts, interest rates, and length of time the interest will be compounded.
Looking for a savings account with a competitive APY?
With a SoFi high yield savings account, get up to 3.60% APY1, no account fees2, and up to $300 with direct deposit†.
Get started
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
1
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.
See additional details at http://www.sofi.com/legal/banking-rate-sheet
2 No Account Fee
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
† †
Who is eligible for a Direct Deposit Bonus?
New and existing SoFi members who have never set up direct deposit with SoFi are eligible for the Direct Deposit Bonus. Bonuses are limited to one bonus per SoFi member. In the case of a joint account, direct deposit activity will only be counted towards the primary account holder’s eligibility for the bonus (the primary account holder is the member who opened the joint account first).
How do I earn the Direct Deposit Bonus?
1. Set up your first Eligible Direct Deposit. SoFi must receive it on or before 1/31/26.
2. Once SoFi receives and recognizes your first Eligible Direct Deposit, we will add up the Total Eligible Direct Deposits received over the next 25 calendar days. This total will determine the bonus amount.
| Total Eligible Direct Deposit |
Bonus Amount |
Timing |
| $1.00 - $999.99 |
$0 |
To determine your bonus amount, SoFi will add up all your Eligible Direct Deposits received within 25 calendar days of your first Eligible Direct Deposit. |
| $1,000.00 - $4,999.99 |
$50 |
| $5,000.00 or more |
$300 |
3. You will receive the bonus amount in your SoFi Checking account within 7 business days of completing all requirements listed above. You are only eligible to receive one bonus amount. You must have an open SoFi Checking account in good standing at the time of the bonus payment.
What is an Eligible Direct Deposit?
Eligible: Recurring ACH deposit of regular income to your SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by your employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”)
Not Eligible Deposits that are not from an employer, payroll or benefits provider or government agency and deposits that are non-recurring in nature are not eligible. Examples of deposits that are not eligible include check deposits, peer-to-peer transfers (e.g., transfers from Zelle, PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), bank ACH funds transfers, wire transfers from external accounts, and IRS tax refunds. SoFi Bank shall, in its sole discretion, assess your Eligible Direct Deposit activity to determine eligibility and may require additional documentation to complete this verification.
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. If you have satisfied the Eligible Direct Deposit requirements but have not received a cash bonus in your Checking account, please contact us at 855-456-7634 with the details of your initial Eligible Direct Deposit. After SoFi validates the details of your Eligible Direct Deposit, your Direct Deposit Bonus will be based on the date we received your initial Eligible Direct Deposit.
What else is important to know?
•This promotion is available between 12/7/2023 at 12:01AM ET and 1/31/2026 at 11:59PM ET. SoFi reserves the right to modify or end the promotion at any time without notice. The terms of this promotion take precedence over the terms of any prior Direct Deposit promotion.
•SoFi reserves the right to exclude any members from participating in this promotion for any reason, such as suspected fraud, misuse, or suspicious activity.
•SoFi members with Eligible Direct Deposit activity can earn 3.60% annual percentage yield (APY) on savings balances. Interest rates are variable and subject to change at any time. These rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at http://www.sofi.com/legal/banking-rate-sheet.
•Bonuses are considered miscellaneous income, and may be reportable to the IRS on Form 1099-MISC (or Form 1042-S, if applicable). SoFi is required to do this reporting in compliance with the applicable federal and state reporting requirements. Recipient is responsible for any applicable federal, state or local taxes associated with receiving the bonus offer; consult with your tax advisor to determine applicable tax consequences.
•This promotion is offered by SoFi Bank, N.A, Member FDIC (“SoFi”)
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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