How compounding works for term deposits
Earning interest on interest
Compounding interest means earning interest on:
- the money you put in, and
- the interest that’s already been added along the way.
Instead of interest being calculated only on your original deposit, each interest payment is added to your balance. From there, future interest is worked out on the new total, helping your savings build step by step.
Why does compounding interest matter?
Giving your savings more time to grow
The longer your money is invested, the more time compounding interest has to do its work. Over time, those small additions can build on each other, helping your savings grow steadily, without you needing to do anything extra.
It’s often described as a gentle snowball effect, where progress builds gradually and your money gains a little more momentum as time goes on.
A simple example of compounding interest
How small differences can add up over time
On a $50,000 term deposit for 12 months at 4% p.a.:
- Interest paid at maturity: you’d earn $2,000 in interest over the year.
- Interest paid quarterly and reinvested (compounding quarterly): you’d earn about $2,030 in interest over the year.
Note: Figures are rounded and for illustration only. Actual outcomes depend on the product’s terms, rate, fees and how interest is applied.
Ready to make your money work harder
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Important: This guide shares general information only and isn’t financial advice. It doesn’t consider your personal goals or situation. If you’d like advice for your circumstances, it’s a good idea to speak with a licensed financial adviser.