Compound Interest Calculator

What Is Compound Interest?

Compound interest is interest earned on both your original deposit and the interest that has already been added to it. Unlike simple interest — where you only earn on the principal — compounding creates a snowball effect that accelerates your returns over time. The longer you leave your funds deposited, the more pronounced this effect becomes.

Here is a concrete example: deposit $1,000 at 5% APR (simple interest) and after one year you have $1,050. But with daily compounding at the same 5% APR, you effectively earn 5.13% APY and end up with $1,051.27. That extra $1.27 might seem small, but over five years the difference between simple and compound interest on the same deposit grows to over $30 — and at higher rates or with larger sums, the gap widens dramatically.

APY vs APR — The Compounding Difference

APR (Annual Percentage Rate) is the raw interest rate without accounting for compounding. APY (Annual Percentage Yield) is what you actually earn after compounding is factored in. A protocol advertising 5% APR with daily compounding actually delivers about 5.13% APY. Most DeFi protocols quote APY, which already includes the compounding benefit. When comparing yields, always make sure you are comparing APY to APY — mixing APR and APY leads to misleading conclusions.

Real Examples: $1,000 at 5% APR (Daily Compounding)

These figures assume daily compounding at a constant 5% APR (≈5.13% APY). In practice, DeFi yields fluctuate — use the calculator above to model different scenarios.

Where to Earn Compound Yield on USDT/USDC

Several battle-tested DeFi protocols let you deposit stablecoins and earn compound yield. Aave V3 is the largest lending protocol by total value locked, supporting USDT and USDC across Ethereum, Polygon, Arbitrum, and other chains. Compound V3 offers a streamlined lending experience focused on a few core assets including USDC. Morpho optimizes rates by matching lenders and borrowers peer-to-peer on top of Aave and Compound. Pendle lets you trade future yield, enabling fixed-rate strategies on stablecoins. For a comprehensive comparison of current rates, visit our yield rankings page.

Risk Considerations

Earning yield on stablecoins is not risk-free. Smart contract risk is the primary concern — a bug or exploit in a protocol's code could result in partial or total loss of deposited funds. Established protocols like Aave have been audited extensively and secured billions for years, but no code is immune to vulnerabilities. Depeg risk is another factor: if USDT or USDC loses its dollar peg (as USDC briefly did in March 2023), your holdings temporarily lose value. Finally, rate volatility means the APY you see today could be lower tomorrow — high rates often compress as more capital flows in. Diversifying across protocols and sticking to well-audited platforms is the most practical risk mitigation strategy.