Interest can earn interest, too
With compound interest, interest added to a balance can earn interest in later periods. The rate matters, but so do time, contributions and the way the calculation is made.
Follow one balance for two years
Start with €1,000 at a fixed annual rate of 3%.
In the second year, 3% is applied to €1,030. That produces €30.90 of interest. The extra €0.90 is interest on the first year’s interest. This example assumes the interest stays in the account, with no fees, taxes, deposits or withdrawals.
Know what the estimate assumes
A projection needs a starting amount, a rate, a time period and a compounding frequency. Regular deposits change the result too, and their timing can matter. Compare calculations using the same assumptions before drawing a conclusion from the totals.
Our two-year example uses annual compounding. A product that calculates or credits interest differently may produce a different result.
Separate a calculation from a promise
A calculator repeats the assumptions you give it. Entering a constant investment return does not make that return predictable or guaranteed. Investment values can fall, and fees and taxes can reduce the amount you keep.
For a quoted savings rate, check whether it is fixed or variable, how long it applies and what conditions you must meet. A projection is only as useful as those details.
Read the balance in context
The number in an account is one part of the picture. Inflation affects what it can buy, and recurring fees affect what remains. Keeping these separate helps explain why a higher future balance does not always mean the same increase in purchasing power.
Compounding describes a calculation. Whether a real outcome matches it depends on the rate, timing, costs and risks.
Sources & further reading
Examples are illustrative. Product terms, taxes and protections depend on your location and circumstances. This guide is general education.