Interest on the interest.

Compound interest pays you on your principal and then on the interest that principal has already earned. The consequence is that growth is not a straight line but a curve that steepens: in a twenty-year projection, the final five years typically add more than the first ten. This is the whole argument for starting early, and it is why a delay of a few years costs far more than the contributions missed.

Compounding frequency matters less than people expect — monthly versus annual compounding changes the outcome slightly. What moves the result is the rate, the term, and above all the monthly contribution. A steady habit of a few hundred dollars a month outperforms a larger one-off deposit over any long horizon, because every contribution starts its own compounding clock.

Two forces work in the other direction. Fees compound exactly as returns do: a 1% annual fee on a portfolio held for thirty years can consume a fifth of the final balance. And inflation erodes what the number buys — a balance projected at 6% nominal in a 2.5% inflation world is growing at about 3.5% in real terms. Running the projection at your expected return minus expected inflation gives you the figure in today’s money.

The same mathematics governs debt, which is worth remembering when comparing a savings plan with paying down a balance. Credit card interest compounds against you at rates no savings account will match, so clearing it is usually the highest-return use of the next dollar.