Who Offers Compound Interest Accounts?

Compound interest allows money to grow by earning interest not only on the initial principal but also on the accumulated interest from previous periods. Earned interest is added back to the principal, and subsequent calculations are based on the new, larger sum. The more frequently interest is calculated, such as daily or monthly, the faster the balance can increase. This accelerating effect makes compound interest a powerful financial concept.

Traditional Banks and Credit Unions

Traditional financial institutions, such as banks and credit unions, commonly offer deposit accounts that feature compound interest. Funds held in these accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions, up to standard limits.

Standard savings accounts at these institutions offer compound interest, often calculated daily and credited monthly or quarterly. While secure, their interest rates might be lower compared to other options. Certificates of Deposit (CDs) are another common offering, providing a fixed interest rate for a specific term. Interest on CDs compounds daily or monthly over the term, and the accumulated interest is paid out at maturity or periodically. Early withdrawal from a CD incurs a penalty.

Money Market Accounts (MMAs) are also available, blending features of both savings and checking accounts. MMAs offer variable interest rates that compound, often at a higher rate than standard savings accounts. Interest on MMAs is compounded daily and paid monthly. These accounts may require higher minimum balances and often come with limits on monthly transactions.

Online Banks and Digital Platforms

Online-only banks and digital financial platforms are significant providers of compound interest accounts, known for competitive interest rates. They operate with lower overhead costs due to their lack of physical branches, passing savings to customers through higher yields. Accounts at these online providers are FDIC-insured, offering the same protection as traditional banks.

High-Yield Savings Accounts (HYSAs) are a primary product offered by online banks, providing significantly higher compound interest rates than traditional banks. Interest on HYSAs is compounded daily, contributing to faster growth. Many online HYSAs feature no monthly maintenance fees and minimal or no minimum balance requirements.

Online banks also provide Certificates of Deposit (CDs) and Money Market Accounts (MMAs) with features similar to their traditional counterparts but often with more attractive interest rates. Online CDs offer various terms, and their interest compounds daily or monthly. Online MMAs also compound interest daily, and may offer more flexible transaction limits than traditional MMAs. The digital nature of these platforms provides convenient access and management of accounts through online portals and mobile applications.

Investment and Retirement Account Providers

While investment and retirement accounts do not typically pay “interest” in the same way bank deposit accounts do, the principle of compounding is fundamental to how they generate wealth over time. Compounding in these contexts refers to “compound growth” or “compound returns,” where earnings on investments are reinvested to generate further earnings. This reinvestment allows the investment base to grow, accelerating potential returns.

Brokerage firms offer various investment accounts where compounding can occur. When investments such as stocks, bonds, or mutual funds generate returns like dividends or capital gains, these can be reinvested into the account to purchase more shares or units. This process increases the total investment, allowing future returns to be calculated on a larger sum, thereby compounding the growth.

Retirement accounts, such as Individual Retirement Accounts (IRAs) and 401(k)s, are tax-advantaged vehicles designed for long-term growth through compounding. Contributions to these accounts, such as the 2025 IRA limit of $7,000 ($8,000 for those age 50 and over) or the 401(k) limit of $23,500 ($31,000 for those age 50-59, and $34,750 for those age 60-63), are invested in various assets like mutual funds or exchange-traded funds. The returns on these underlying investments are reinvested within the account, allowing them to compound over decades, which can significantly increase the total value of the retirement savings.