Investments that earn compound interest in South Africa

Albert Einstein famously said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

If that’s the case, let’s make sure we understand it.

And more importantly, learn how to apply it to investing in South Africa.

Here we go.

 

Compound interest investments in South Africa

Compound interest explained

What is compound interest?

Compounding means ‘putting together’ or ‘combining’. While interest refers to money that you earn. In finance, compound interest is interest earned on both the initial investment and the interest that builds up over time. Essentially, compound interest grows daily, monthly, or yearly on both the initial investment and new interest. This creates a powerful cycle of growth that speeds up over time.

In short: it’s interest on interest — and it really adds up over time.

 

 

How does compound interest work

Each time interest is added to the investment, future interest is calculated on the new total. This cycle repeats, creating a snowball effect where small investments can turn into significant wealth, over a long enough period.

Not all investments generate compounding interest by default. If an investment pays the interest into another account, then it doesn’t compound.

Example: Fixed deposit with payout vs. reinvestment

Let’s say you open a fixed deposit for R100,000 at a 10% annual interest rate. The bank pays out the R10,000 interest into your savings account each year.

• Payout: You spend it or leave it in that separate account. In this case, the investment balance stays at R100,000, and you only earn interest on that original amount each year. It does not compound.

• Reinvestment: The bank automatically reinvests the R10,000 interest into the fixed deposit. In this case, the balance goes up to R110,000. Next year you’ll earn interest on R110,000, not just R100,000. It compounds.

 

It’s an exciting concept.

Want to calculate how much you could make with compounding? Let’s look at the formula.

 

Compound interest formula

The formula to calculate compound interest is:

A = P(1 + r/n)^(nt)

Where:

• A = the amount you’ll have in the future (your total investment value)
• P = the starting amount (the money you invest at the beginning)
• r = the annual interest rate (written as a decimal; for example, 8% becomes 0.08)
• n = how many times interest is added each year (for annual compounding, n = 1; for monthly compounding, n = 12)
• t = how many years you leave the money invested (the length of time your money grows)

 

In plain English…

Future Value = Your starting money × (1 + interest rate ÷ number of times interest is added each year) raised to the power of (number of times interest is added each year × years invested).

 

Here’s an example:

Let’s say you invest R10,000 at an 8% annual interest rate, compounded once per year, for 5 years.

You would update the formula inputs by replacing A, P, r, n, and t with these numbers. Then, the calculation would look like this:

• A = P(1 + r/n)^(nt)
• A = 10,000 × (1 + 0.08 ÷ 1)^(1 × 5)
• A = 10,000 × (1.08)^5
• A ≈ 10,000 × 1.4693
• A ≈ R14,693 (this is the future value of the investment)

 

How much interest can you earn?

How much interest you can earn depends on the amount invested, the interest rate, how frequently the money compounds, and how long you keep the money invested.

Let’s break it down with some real numbers.

Here’s a breakdown of potential growth at a 10% interest rate, compounded annually over multiple years:

Initial Investment	After 1 Year	After 5 Years	After 10 Years	After 20 Years
R10,000	R11,000	R16,105	R25,937	R67,275
R50,000	R55,000	R80,525	R129,685	R336,375
R100,000	R110,000	R161,051	R259,374	R672,750
R1,000,000	R1,100,000	R1,610,510	R2,593,742	R6,727,500
R2,000,000	R2,200,000	R3,221,020	R5,187,484	R13,455,000

 

Here’s an important note…

While these scenarios are exciting, you have to factor in inflation when projecting future value. The cost of goods goes up too. This means that 10% growth may actually be closer to between 3% and 6% after you discount the cost of inflation.

With that in mind, let’s look at a couple of compounding investments.

 

 

Best compound interest investments in South Africa

Here is the shortlist:

1. Fixed deposits with reinvestment
2. Money market funds
3. Tax-free savings accounts (TFSAs)
4. Dividend reinvestment in ETFs
5. Unit trusts and balanced funds
6. RSA Retail Savings Bonds

 

1. Fixed deposits with reinvestment

A stable savings product where you lock your money for a fixed period at a guaranteed rate. Interest is automatically reinvested, compounding your returns.

• Pros: Predictable returns, low risk, stable growth.
• Cons: Limited liquidity; fixed terms may restrict early access.

 

2. Money market funds

Low-risk funds that invest in short-term debt instruments. They offer steady returns with interest typically reinvested monthly.

• Pros: Low volatility, regular income, suitable for short-term goals.
• Cons: Returns can be lower than inflation over long periods.

 

3. Tax-free savings accounts (TFSAs)

A government-approved investment product where all interest, dividends, and growth are tax-free, making compounding even more powerful over time.

• Pros: Tax-free growth, suitable for long-term savings, easy to access.
• Cons: Annual and lifetime contribution limits; penalties for excess contributions.

 

4. Dividend reinvestment in ETFs

Exchange-traded funds that track market indices and pay out dividends, which can be automatically reinvested for compound growth.

• Pros: Low-cost diversification, exposure to growth markets, ideal for long-term investors.
• Cons: Subject to market fluctuations; patience required for best results.

 

5. Unit trusts and balanced funds

Professionally managed portfolios that combine different asset classes and reinvest earnings for growth.

• Pros: Professional management, diversification, and long-term potential.
• Cons: Management fees apply; returns vary with market performance.

 

6. RSA Retail Savings Bonds

Government-backed savings instruments with guaranteed fixed interest rates and reinvestment options.

• Pros: Safe, transparent, reliable growth for conservative investors.
• Cons: Locked-in terms mean less flexibility for early withdrawals.

 

Not sure which one to pick? Learn more about the best investments in South Africa. Then, make a decision.

Always invest through financial service providers (FSPs) registered with the Financial Sector Conduct Authority (FSCA) for protection and compliance peace of mind.

⭐ Related content:

• How to invest money in South Africa (for beginners)
• Top 20 investment companies in South Africa (in 2025)
• Monthly investment plans

 

Final thoughts

Compound interest works best when you stay consistent, reinvest, and give it time.

Whether you start with R20,000 or R2 million, what matters most is making smart decisions and sticking with them. You don’t have to overthink it — start small, keep reinvesting and let it grow steadily. Soon, your money will do the heavy lifting.

Here’s another quote.

“Money makes money. And the money that money makes, makes money.”

 This one is from Benjamin Franklin (who’s on the $100 bill).

If you want to take care of your debt before you start investing. Talk to someone on our team at My Debt Hero. We specialise in helping South Africans with their debt.