Top 11 Compound Interest Investments

Warren Buffett attributes the vast majority of his wealth to “a combination of living in America, some lucky genes, and compound interest.”

In fact, it's hard to find an interview or speech given by Buffett where he doesn't mention the power of compounding.

Here's an example of that power: if you invest $10,000, contribute $100 per month, and earn an 8% return, you will have over $101,500 after 20 years:

Source: Investor.gov

The best part about this graph is that only $34,000 of that $101,523 is from contributions, with the rest coming from interest. That's the power of compound interest.

To take advantage of this power, you need 3 things:

1. An initial investment and/or regular contributions (the more the better)
2. An investment with positive returns (the higher the better)
3. Time (the longer the better)

Below, I list the 11 best compound interest investments you can make.

Several of these are safer, more secure compound interest investments, such as Treasuries, HYSAs, and CDs, while others are higher risk, such as stocks, real estate, and alternatives.

Remember, when investing, the higher the risk, the higher the potential returns. For example, stocks are riskier than bonds, but they've historically generated higher returns. Most investors invest in multiple asset classes to spread out the risk.

When building your investment portfolio, be sure to choose a combination of investments that meet your risk tolerance and long-term goals.

The 11 best compound interest investments

Disclaimer: I've given each investment below an overall rating, as well as a return and risk score out of 5. These are personal opinions. Actual results may vary. Be sure to conduct your own due diligence.

1. Treasury bills

• Overall rating:
• Potential returns: 3/5
• Risk level: 0/5
• Best for: Everyone

Treasury bills (also called Treasuries or TBills) are short-term debt issued and backed by the U.S. government.

U.S. government debt is considered the safest investment in the world — the 2-year Treasury bill is often referred to as the “risk-free” rate.

It's considered risk-free because, if it ever didn't have enough revenue to cover its debt obligations, the government could print more money and pay back its creditors.

Personally, I keep my emergency fund plus the majority of my extra cash in Treasuries (keep reading to see what I do with the rest of my cash).

You can buy Treasuries in your regular brokerage account (Fidelity, Schwab, TD Ameritrade, etc.).

If your broker doesn't offer Treasuries, I'd recommend Public, which offers stocks, ETFs, Treasuries, alternatives, and cryptocurrencies on its easy-to-use website or mobile app.

Why I'd choose it: Everyone should have an emergency fund with at least 6 months' worth of living expenses saved. Instead of letting this money sit in a bank account, you can earn higher interest with less risk by investing in Treasury bills.

Check out Public

2. ETFs & stocks

• Overall rating:
• Potential returns: 3–4 out of 5
• Risk level: 3/5
• Best for: Everyone

Investing in stocks is one of the best ways to put the power of compound interest on your side.

Historically, stocks have outperformed bonds, Treasuries, gold, and cash by a wide margin.

From 1802 to 2013, stocks returned 6.7% (net of inflation), which is almost double the return of bonds, at 3.5%, and more than double the return of Treasury bills:

Source: Wealth Capitalist

While 3.2% outperformance may not seem like much, the actual effects are staggering. For example, a $100,000 investment over 20 years, compounded annually, would result in the following:

• Stocks (6.7%): $365,838
• Bonds (3.5%): $198,979

That 3.2% per year turned into a difference of $167,000.

To give your money the best chance to compound, you should probably be investing in stocks.

If you're new to investing in stocks, I would recommend buying ETFs. An ETF (exchange-traded fund) owns a basket of stocks in a single fund, making for easy diversification.

A few of my favorite ETFs are:

• Vanguard S&P 500 (VOO): Holds the most valuable publicly traded companies in the United States.
• Vanguard Total World Stock Index Fund (VT): Holds every publicly traded company in the world.
• Invesco QQQ (QQQ): Holds the stocks that make up the Nasdaq-100 index.

Personally, I own a combination of ETFs (for easy diversification) and individual stocks (to potentially earn outsized returns).

Why I'd choose it: Stocks are one of the most popular and effective means for building wealth via compound interest. They can be volatile, but you can reduce the risk of investing in stocks by having a holding period of 20+ years.

The chart below shows the minimum and maximum annualized return percent, by holding period, for U.K. stocks from 1900–2017:

Source: AJ Bell

You can buy stocks and ETFs in your brokerage account. If you need a brokerage account, my #1 recommendation is Public.

Sign up for Public

3. Private credit

• Overall rating:
• Potential returns: 3–4 out of 5
• Risk level: 3/5
• Best for: Accredited investors who want short-term income and diversification outside of public markets

Private companies, which don't have access to the public markets, must turn to private markets for financing. The money is used for growth or funding current operations and is usually backed by machinery, land, loan portfolios, or other assets.

Historically, private credit has been only available for institutional-level investors. Now, Percent has opened the door for accredited investors to access this $3.14 trillion market.

For investors, private credit is attractive for 3 reasons:

1. Short-term durations: Most deals have a maturity period of 9 months.
2. Higher yields: Due to the higher risk associated with non-bank lending, borrowers must offer higher interest rates to attract investors (deals on Percent have generated a 13.17% historical-weighted average APY).
3. Largely uncorrelated: Private credit offers unique diversification outside of public equity and debt markets.

Why I'd choose it: Short-duration income and diversification outside of public markets.

If you're an income-seeking, accredited investor, you should try Percent. To learn more about it, you can read my full Percent Review. You can also get a welcome bonus of up to $500 through our links.

Check out Percent

4. High-yield savings account

• Overall rating:
• Potential returns: 1–2 out of 5
• Risk level: 1/5
• Best for: Everyone
  

To complement my Treasuries account (which holds the bulk of my cash), all of my bills and credit cards are paid off with the cash I keep in my high-yield savings account. I usually keep enough cash to cover about 2 months' worth of bills in this account.

Most high-yield savings accounts are offered by online banks, which don't have the costs associated with operating physical banks. These savings are then passed on to customers through higher yields.

Other than paying higher rates, these savings accounts operate the same way as traditional savings accounts, making them a much better option for anyone who doesn't need the services of a physical bank.

I keep cash in a high-yield savings account for convenience. While the returns are slightly lower and the risk is slightly higher than buying Treasuries, I find it much simpler to pay bills with a savings account.

Why I'd choose it: Everyone should have a checking/savings account to pay bills with, and a high-yield savings account offers rates much higher than traditional banks — when I switched banks, my new rate was 55x higher.

If you decide to open a high-yield savings account, be sure the rate isn't a teaser rate and make sure there are no monthly fees or account minimums.

You can compare savings accounts on Raisin, a website that connects you to an exclusive network of federally insured banks and credit unions. On Raisin, you can fund and manage savings products at multiple banks from a single login.

Compare accounts on Raisin

5. Real estate

• Overall rating:
• Potential returns: 3/5
• Risk level: 2–3 out of 5
• Best for: Long-term investors who want to diversify their portfolios outside of public markets
  

Real estate investors benefit from price appreciation, rental income, and tax breaks. It's also less volatile than the stock market and has historically been a good hedge against inflation.

Source: Yieldstreet

The upfront capital required to purchase real estate, however, prevents many investors from ever getting started. At least, it used to.

Today, crowdfunding real estate platforms allow you to start buying properties with as little as $100. These platforms handle the due diligence, paperwork, management, and maintenance of every deal.

My favorite real estate platform for accredited investors is Yieldstreet, which has invested more than $4 billion since its inception and has unparalleled access to real estate developers.

Yieldstreet's realized debt deals have an average net annualized return of ~9%. In addition to real estate, Yieldstreet offers access to 10 other private asset classes.

Why I'd choose it: Real estate has long been one of the most conventional ways to create wealth. It provides investors with a consistent income stream and the potential for price appreciation.

For retail investors who want to get started in real estate, I recommend Arrived. Arrived invests in single-family homes for both long-term and short-term rentals. As of October 2023, Arrived properties were paying annualized yields ranging from 2.0% to 8.1%.

And, because of crowdfunding platforms like Arrived and Yieldstreet, it's never been easier to get started in real estate (which is also one of the best ways to invest 1 million dollars).

6. Corporate bonds & bond ETFs

• Overall rating:
• Potential returns: 2/5
• Risk level: 2/5
• Best for: Income-seeking investors (primarily those who are in or near retirement age)

Corporate bonds are debt instruments issued by publicly traded companies to finance operations, growth, R&D, acquisitions, and more.

In return for lending money to the company issuing the bond, investors will receive interest payments in addition to returning the principal amount when the bond matures.

Corporate bonds have maturities that range from short-term (less than 3 years) to long-term (more than 10 years).

Unlike an equity investment, companies are legally obligated to pay back their debt regardless of how the business is performing.

In bankruptcy, bondholders get priority over common and preferred equity shareholders in claims on the company's assets.

Therefore, corporate bonds are less risky (and have lower returns) than stocks. The primary risk is “default risk,” or the company failing to pay its debt obligations.

Corporate bonds are riskier than Treasuries (which have no default risk), so interest rates on corporate bonds are typically higher.

Right now, for example, the 10-year Treasury is yielding around 3.79%, while the highest-quality 10-year corporate bonds are yielding about 4.66%.

Instead of buying individual bonds, you can also invest in bond ETFs, which hold many bonds with a variety of issuers, maturity dates, and interest rates.

These funds also usually make monthly distributions, as opposed to semiannual interest payments like most individual bonds. You can use our ETF screener to search for the perfect bond ETF for your portfolio.

Why I'd choose it: Corporate bonds and bond funds are great for income-seeking investors and those looking for stability in their portfolios.

Most legacy brokerages (Fidelity, Vanguard, Schwab) offer corporate bonds and almost every broker will offer bond ETFs.

If you're still looking for a broker, you can buy bonds and bond ETFs on Public:

Check out Public

7. Certificates of deposit (CDs)

• Overall rating:
• Potential returns: 1–2 out of 5
• Risk level: 1/5
• Best for: Short-term savings

Certificates of deposit (CDs) are a savings product offered by banks, which offer fixed interest rates in return for locking your money up for a set period of time.

Unlike a traditional savings account, which allows you to access your money whenever, investing in a CD guarantees your bank you won't touch that money for the duration of the CD (typically 3, 6, 12, or 18 months).

This allows the bank more flexibility in what it will do with the funds. In return, the bank will offer a higher interest rate than it would on a savings account.

Why I'd choose it: If you know you won't need some cash for a certain period but don't want to move it out of your bank and into your brokerage to buy a Treasury, investing in a CD is a good middle ground.

You can compare CD products and invest across multiple banks at once with a Raisin account:

Register for Raisin

8. Series I bonds

• Overall rating:
• Potential returns: 1–2 out of 5
• Risk level: 1/5
• Best for: Income-seeking investors who want to combat inflation

Series I bonds are issued by the U.S. government and have a fixed interest rate and a fluctuating interest rate, depending on the current level of inflation.

After issuance, the fluctuating portion of the interest rate is adjusted every 6 months based on the current inflation rate.

Source: TreasuryDirect

I bonds have a minimum holding period of 5 years, but you can sell them after 12 months. However, if you sell them prior to the 5-year mark, you will forfeit the previous 3 months' worth of interest as a penalty.

You can buy I bonds directly from the U.S. government via the TreasuryDirect website. You can purchase up to $10,000 in I Bonds each year.

Why I'd choose it: I bonds are good for medium- to long-term savings and a good hedge against inflation.

9. Alternatives (cryptocurrency, art, collectibles, etc.)

• Overall rating:
• Potential returns: 3–4 out of 5
• Risk level: 4–5 out of 5
• Best for: Investors looking for extra diversification who aren't afraid of the speculative nature of alternatives

Alternatives are a general asset class that I'm using to refer to anything outside of traditional investments like stocks, bonds, and cash. Investment options include cryptocurrencies, art, collectibles, commodities, private equity, hedge funds, and more.

In general, these investments are more speculative in nature and may lack liquidity, making them riskier than traditional investments. Coupled with that risk is the potential for generating big returns.

According to research by BlackRock, alternatives can “lower volatility, enhance returns, and broaden diversification of a portfolio.”

If you're looking for platforms to invest in alternative assets, check out:

• Yieldstreet: Yieldstreet is the biggest alternative asset platform and offers 11 alternative asset classes, though it's primarily made for accredited investors.
• Masterworks: Masterworks is the best platform for investing in fine art.
• Public: With Public, you can invest in cryptocurrencies, art, shoes, NFTs, and more alongside your stock and ETF portfolio.

Why I'd choose it: If you're interested in and willing to do the necessary research, investing in alternatives is an increasingly popular way to add diversification and the potential for higher returns to your portfolio.

10. Health savings account (HSA)

• Overall rating: 
• Potential returns: 2–3 out of 5
• Risk level: 2–3 out of 5
• Best for: Anyone with a high-deductible medical plan

An HSA is a savings account that you can use to set aside money on a pre-tax basis to pay for medical expenses.

Additionally, you can invest the money in your HSA in ETFs, mutual funds, or other investment products that your HSA provider offers. Like a standard retirement account, this money grows tax-free.

However, unlike a retirement account, the money is not taxed when you make a withdrawal to pay for a qualifying medical expense.

This makes HSAs the only account type that offers a “triple tax advantage.” Money is contributed pre-tax, it grows tax-free, and it is not taxed upon withdrawal when used for medical expenses.

Once you turn 65, you can start using your HSA for non-medical expenses, though you'll have to pay income tax on the distribution like a traditional IRA or 401(k) account.

HSAs are only available to individuals with qualifying, high-deductible medical plans. You can open an HSA at certain banks, credit unions, and other financial institutions (I use Health Equity).

Why I'd choose it: If you are on a high-deductible medical plan and qualify for an HSA account, you should consider contributing the max limit each year to take advantage of the triple tax benefits.

11. Money market account

• Overall rating: 
• Potential returns: 1–2 out of 5
• Risk level: 1/5
• Best for: Someone who wants to combine their physical bank's checking and savings accounts

Money market accounts are another way for you to earn compound interest from your bank.

Money market accounts combine features of savings accounts and checking accounts.

Like savings accounts, you earn interest on your balance, but you may be limited to the number of withdrawals you can make. Like a checking account, your account may come with paper checks and a debit card.

These accounts are convenient and flexible solutions, but I wouldn't recommend them to most people. Most people would be better off with dedicated accounts for checking, savings, and investing as opposed to a watered-down combination of the three.

That said, I know people who prefer to have just one account, rarely make transactions, and prefer their bank's money market account versus online, high-yield savings accounts.

Why I'd choose it: If you want access to a physical bank, rarely make transactions, and want to have only one account, check out your bank's money market account offerings.

You can compare money market accounts (and fund multiple accounts at different banks at once) with Raisin.

Try Raisin today

How we chose the best compound interest investments

When evaluating investments, we consider the following:

• Returns: How has the investment performed historically? How is it expected to perform in the future? How stable/reliable are those returns expected to be?
• Risk: How much volatility should be expected? How much confidence can we place in the expected returns? How much downside is possible? How stable is the investment?
• Duration: How long should the investment timeline be? Should the investment be held for weeks, months, or years?
• Popularity: How popular is the asset among investors? Has the asset class been around for a long time or is it relatively new?
• Accessibility: How easy is the investment to buy and sell? How simple is it to create an account and start investing? Are the recommended platforms easy to navigate?

What is compound interest?

Compound interest is the “interest on interest” — it's the interest you earn on your interest from the previous period.

For example, a $1,000 investment that earns 10% interest will be worth $1,100 after the first year, with $100 coming from interest. In year two, the investment will grow from $1,100 to $1,210, or $110 in interest.

The additional $10 you earned in interest in year two is compound interest — it's the interest on the $100 of interest from year one.

This can add up quickly. Assuming your $1,000 investment continues earning 10% per year, your resulting balance would be:

• $1,100 after 1 year
• $1,210 after 2 years
• $1,610 after 5 years
• $2,594 after 10 years
• $6,728 after 20 years
  

The lesson: Invest early and give your money plenty of time to compound.

How to earn compound interest

Anytime you invest, you're giving your money a chance to compound. You can earn compound interest by investing in stocks, Treasuries, private credit, real estate, CDs, and more.

There are 3 key ingredients to earning compound interest:

1. An initial investment (and/or regular contributions)
2. An investment that generates positive returns
3. Time

The most important of these 3 is time. Time is the primary power behind the mathematical phenomenon which is compound interest.

How to open a compound interest account

Here are the steps you need to take to open a compound interest account:

1. Choose what type of investment account you need
2. Compare options (costs, fees, welcome bonuses)
3. Sign up for an account
4. Fund your account
5. Invest

Be sure to do your due diligence on the account you open and the investment(s) you make, but don't wait too long to start — remember, time is your friend.

Final verdict

That's my list of the best compound interest investments in 2024.

I wrote this article to serve as an initial guide to these investment options.

You should do your own research on every account and investment mentioned in this article and decide how you should construct your portfolio based on your own financial goals and risk tolerance.

Whatever you choose, the best thing you can do is open an account right now and start putting the power of compound interest to work today.