The snowball-like effect of compound interest

3-4 minute read

Compound interest is interesting – truly! So what is it and how can you make the most of it?

Compound interest is when you earn interest on both the money you’ve saved, plus you earn interest on your interest! And that continues to grow – just like a snowball. Compound interest does the work for you, so you feel like it’s all going in the right direction without much effort. 

It might not be widely understood, but it can be pretty powerful when it comes to planning for your future – especially if you start early!

So how does compound interest work?

With simple interest, you only earn interest on your initial deposit and it’s not added to the closing balance. For example, if you take out a $10,000 term deposit for two years and have the interest paid out each quarter, you’ll only earn interest on the initial $10,000 deposit.

But with compound interest, it’s like a snowball effect. For example, if you invested that same $10,000 in a term deposit for two years but chose instead to have your interest reinvested each quarter, you earn interest on your initial deposit PLUS any interest you’ve earned. Yes, that means you earn interest on your interest.

Make the most of it with a term deposit or PIEs 

If you’re investing money in a term deposit or term PIE, for terms of 180 days or more, you can choose whether you want to have your interest paid out regularly or reinvested (compounded).

It costs you nothing to have your interest reinvested – but it will earn you more interest. 

Explore your options

If you’re thinking of investing some of your hard-earned money in a term deposit, reinvesting your interest at regular intervals could be a smart way to boost your return.

Find out about ANZ Term Deposit options or ANZ PIE Fund – Term Option.

Important information

This material is for information purposes only. We recommend seeking financial advice about your situation and goals before getting a financial product. To talk to one of our team at ANZ, please call 0800 269 296, or for more information about ANZ’s financial advice service or to view our financial advice provider disclosure statement see