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The Best Compound Interest Account [Maximum Growth, Control, Liquidity, Tax Incentivized]

Fact Checked by Jason Herring & Barry Brooksby
Licensed Agents & Life Insurance Experts.
Insurance and Estates, a strategic life insurance provider composed of life insurance professionals, is committed to integrity in our editorial standards and transparency in how we receive compensation from our insurance partners.

In the following article on compound interest growth and the different compound interest accounts available we are going to take a different approach than you will find anywhere else, so please make sure to read through the entire article to discover what one of the best compound interest account is.

Compound Interest

It has been called the 8th wonder of the world, with most giving the nod to Albert Einstein. The quote goes like this “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t {understand it] pays it.”

This article answers the question of just what compound interest is and explores the various types of compound interest accounts available. By taking advantage of compound interest, you can position yourself to build up your savings over the long term as the magic of earning interest on interest helps expand your wealth and magnify your legacy.

What is Compound Interest?

Compound interest is best understood by comparison to simple interest. Definitions of these two concepts are as follows:

Simple Interest vs Compound Interest

simple interest vs compound interest
  • Simple interest: Interest earned on invested principal over multiple periods of time that does not take into account the interest earned in earlier periods. In other words, interest is only paid on principal, not on any interest earned on that principal.
  • Compound interest: Interest earned on invested principal over multiple periods of time that does account for the interest earned on the principal in earlier periods. Interest is earned on interest plus principal when compound interest is used. It is this “compounding” of principal and interest that creates huge long-term accumulation.

Compound Interest vs Simple Interest Example

The use of a compound interest example is a good way to illustrate the power of compound interest vs simple interest.

Consider a bank customer who invests $10,000 in a bank account paying compound interest and one who invests the same amount in a bank account paying simple interest.

If the account paying compound interest compounded annually, how much more would the account earning compound interest be worth than the one earning simple interest after 5 years?

Simple Interest at 4% over 30 years
Year 1 Year 5 Year 10 Year 20 Year 30
Starting Value $10,000 $11,600 $13,600 $17,600 $21,600
Annual Interest        $400       $ 400         $400        $400         $400
Year-end Value  $10,400 $12,000 $14,000  $18,000 $22,000


Compound Interest at 4% over 30 years
Year 1 Year 5
Year 10
Year 20
Year 30
Starting Value $10,000 $11,698.59 $14,233.12 $21,068.49 $31,186.51
Interest Growth        $400       $467.94       $569.32 $842.74 $1,247.47
Year-end Value  $10,400  $12,166.53  $14,802.44 $21,911.23 $32,433.98


So what happened in the tables above over 30 years? The simple interest account grew at $400 a year, every year, no matter what the total value of the account grew to be.

In contrast, by year 30, the compound interest account was growing over 300% more interest than the simple interest account, and an overall $10,000 plus increase in value.

For more fun with compound interest, click here for a compound interest calculator, so you can run some numbers for yourself.

How Taxes Destroy Compound Interest

An important point we need to make here is how taxes effect compound interest. Here is a chart of one dollar doubling 20 times and that same dollar doubling 20 times but taxed annually at 25%. Notice how paying even a marginal tax rate (25%) can absolutely destroy wealth building.one dollar doubling with no tax and with tax taken out annually

We point out the above about taxes because it is important to consider using an account that is not taxed on gains if possible. We will get into the different compound interest accounts you can use below.

Penny Doubles Every Day for 30 Days

A popular way to demonstrate the power of compound interest is to ask the question, “what would you rather have, $1,000,000 or a penny doubled every day for 30 days?”

Most people initially choose one million dollars. However, as you can see from the chart below, taking a penny doubled every day for 30 days is far and away the winner.

doubling a penny for 30 daysCompound Interest Growth Over 20 & 30 Years

Let’s look back at the above example comparing simple interest to compound interest over 20 and 30 years. This allows us to really start to see the benefits of compound interest kicking in.

$10,000 at 4% simple interest for 20 years would grow to $18,000. Over 30 years at the same rate your $10,000 would grow to $22,000.

Using an online compound interest calculator we can calculate how much the same amount would grow to using compound interest:

Over 20 years at 4% compound interest your $10,000 would grow to $21,911.23 ($3,911.23 greater than using simple interest).

Over 30 years at the same rate it would grow to $32,433.98 ($10,433.98 greater than using simple interest, or 47% greater return with compound interest vs simple interest).

The added time for the compounding to work enables your original investment to grow significantly more than would have been the case if you had received simple interest on the money.

Given that even small amounts can provide substantial growth if they compound over a long enough period of time, it should be readily apparent from these examples that time is of the essence when it comes to maximizing the impact of compound interest on your savings.

Hard to Catch Up

The flip-side of this is that if you fail to start saving early enough, it can be very difficult to make up for lost time due to the power of compounding. This is not to save that you shouldn’t set aside savings later in life, just that the earlier you start saving the better.

By giving your savings as much time as possible to compound in value, you can maximize the money you are able to amass for your financial goals, whether paying a child’s education, purchasing a home, providing retirement income, etc.

Compound Interest Schedule

While an account earning compound interest grows faster over time than one that is paid simple interest, not all compound interest accounts are compounded on the same schedule.

Some accounts are compounded yearly, some quarterly, some monthly, and some weekly or even daily.

The shorter the compounding time, the more rapidly an account will grow. Thus, an account that has interest compounded monthly will grow faster than one compounded yearly, and an account featuring daily compounding will grow faster than one compounding monthly.

The reason is the compound interest account is being credited interest each day, increasing the principle balance, which increases the effect of the interest credited. The balance “compounds” at a greater rate since interest is credited more often.

To avoid consumer confusion regarding the actual interest rate they are receiving on an investment or being charged on a loan, the concept of an effective interest rate is used.

Also known as an annual percentage rate, or APR, the effective interest rate tells you the actual interest rate you are receiving or being charged on an annual basis. This rate takes into account the frequency of compounding to determine the equivalent yearly rate.

Using an APR enables you to compare different compound interest rate accounts on an apples-to-apples basis when it comes to evaluating the interest rate.

The Best Compound Interest Accounts

A number of cash and cash equivalent accounts feature compound interest. Bank savings accounts, mutual fund and brokerage account money market accounts, and life insurance cash accounts typically accrue compound interest.

Corporate and government bonds, on the other hand, often pay simple interest, although sometimes these products will have dividend reinvestment programs which enable compounding.

Mutual funds, whether they invest in equities (stocks), or fixed-income (bonds), allow reinvestment of both dividends and capital gains if they are open-ended, enabling compounding.

A distinction should be made between mutual funds, whether of the equity or fixed-income variety, and cash accounts. While mutual funds feature compounding, unlike cash accounts, any principal invested in these funds is at risk, whereas money held in cash accounts generally doesn’t place your principal at risk (the exception being those rare cases where a financial institution fails, although in such cases there is often some form of insurance covering cash account holders).

Cash Value Life Insurance as a Compound Interest Account

The cash account in cash value life insurance, also known as permanent life insurance, such as whole life and universal life typically receives compound interest.

After you’ve tended to your immediate liquidity needs by setting aside some cash for emergencies, placing money into dividend-paying whole life insurance can be a good way to build up cash savings.

Specific cash value whole life policies typically feature paid-up additions riders, which allow you to add cash to the account if you like.

There are also other life insurance advantages not commonly available with other forms of cash savings, including:

Highly competitive cash value returns:

Dividend-paying mutual life insurance companies cash value accounts have offered returns that have exceeded those offered by most other cash or cash equivalent accounts in recent years.

With these cash value accounts growing in the range of 4% guaranteed, they have rewarded policyholders with highly competitive performance for policyholders.

In addition, although not guaranteed, these mutual that offer participating policies have life insurance dividends, that are paid to policyholders income tax free. Dividends can increase your whole life policy return, with many top mutual offering dividends in excess of 6%.

Tax-favored growth:

Interest earned on a cash value account accumulates tax-deferred. This tax-favored growth enables your money to grow faster than would be the case if it were subject to yearly taxes.

You can withdraw earnings on your cash account free of taxation up to the amount of premiums you have paid into the policy, i.e. your basis. Withdrawals over your basis amount are subject to taxes.

Death benefit protection:

Life insurance is a highly effective method of transferring wealth. If your intention is to build up cash savings to protect your loved ones in case something happens to you, the death benefit protection offered by cash value life insurance will typically provide them with a greater amount than the cash value of your account.

Death benefit proceeds are income tax free to the recipient beneficiary. Additionally, you can gift life insurance cash value to your account beneficiaries without the gifts being subject to income or gift taxes providing the cash stays in the policy.

These gifts can take place during your lifetime. This contrasts with vehicles such as 401k plans or IRAs where taxes must generally be paid on funds passed down to your beneficiaries.

Control over your money:

Another advantage of cash value life insurance is that the funds can be withdrawn in the form of a partial withdrawal or you can borrow against your cash value through a policy loan.

Unlike 401ks or IRAs where a penalty typically applies to most 401k withdrawals before age 59 1/2, there is no such restriction on cash value accounts. And there is no required minimum distribution (RMDs) down the road.

Compound Interest + Velocity of Money = True Wealth Building

This is the most important section of this article on compound interest growth because it describes how your money can grow in your savings account and how that same money can also be utilized for other investments — SIMULTANEOUSLY.

Mutual life insurance companies offer participating policies that pay you a guaranteed rate of return, plus potential dividends. You can borrow money from your account and use it for whatever you choose, such as to finance your own purchases, buying cash flow assets, whatever you choose.

Here is the magic. When you access the money in your cash account, you are actually taking out a life insurance loan by borrowing against the cash value in your policy. The cash value in your life insurance policy continues to grow, because it is still in there. It is still being credited with interest and potential dividends.

You now use your life insurance loan to purchase cash flow assets, such as real estate or other alternative investments like notes or bridge loans, what have you. Now you created cash flow and your life insurance policy cash value (and death benefit) continues to grow at the same time as your new investment.


After you have set aside 6-9 months of emergency funds, consider placing your additional savings into cash value life insurance. Since the policy’s cash value grows tax deferred, your savings will experience true compound growth, at a rate much higher than your typical savings account at a bank.

Final thoughts

The last thing we wanted to leave you with was the idea that it is not just money that benefits from compounding. It can also be things like your habits.

Compound Habits

It is important to point out that compounding can be used in other areas of your life outside of your finances. One of the best examples of this is with habits.

A small change (1%) in your habits over time can have exponential affects on your performance, success and overall quality of life.

Here is a great explainer video (no affiliation to I&E) that shows just how powerful the compound effect of creating new habits can be.

Time is of the Essence

Time is the crucial element in making the most out of compound interest. The difference between an account earning compound interest (or a lifestyle of healthy habits) and one that earns simple interest is generally not all that substantial over short time periods.

However, over extended periods of time the difference between simple interest vs compound interest can be great indeed.

36 comments… add one
  • itzik May 3, 2019, 2:33 pm

    I found out that while in the US Navy the Sfran base purser took out $192 from my $1726.14 earned while in the service of our country. The IRS was to begin taking out tax money from servicemen starting in 1956. I was never compensated for this error and looking at my service records I found the receipt for the tax money taken out from my pay. This was 64 years ago, and I have been trying to get an answer from the IRS but keep getting a run-around with their telephone services. I am trying to ascertain if the IRS owes me the compounded interest on this illegally taken out in 1955. I was separated from the Navy in feb 11th 1956. Is there anyway I can get an answer from them?? If they owe me that unreimbursed money then I would imagine they owe me over $7,000 . How can I get an answer from them???

    • Insurance&Estates May 9, 2019, 7:39 am

      Thanks for reading. It sounds like you need to obtain a local attorney who focuses on working with Veterans issues. Best of luck in your efforts.


  • Paul Rawls November 27, 2020, 4:37 pm

    Dear Itzik
    Please let me know the out come if you need some assistance please let me know for I was in the Navy also from 1970-1972. I can be reached @
    Best Regard
    Paul Rawls

  • Robert Bousaleh March 9, 2021, 5:04 am

    Interested in learning more and opening an account.
    Thank you

  • James P Bryant March 16, 2021, 5:44 pm

    hello i invest around 5000.00 every year in a traditional IRA and this gives me a substantial tax incentive on my tax refund . the IRA itself only pays about 2 percent . is there more benefit in a compound interest account and would it still bring me the same tax incentive on my refund ? just trying to figure this out before tax day comes . thanks

    • Insurance&Estates March 20, 2021, 8:31 am

      Hello James, outstanding question and to get a thorough answer I recommend you connect with Barry Brooksby and get a side by side (truth concepts) comparison. You can connect with him directly at barry@insuranceandestates.com.

      Best, Steve Gibbs for I&E

  • Jaime Govea March 29, 2021, 8:17 am

    To whom it may concern,
    I currently own a small business and would like to invest in what sounds like a cash compound uninterrupted interest account, where my goal is to start using that money for real estate investing. Can someone help me by explaining which direction is best and which company is in line for my goals.

    • Insurance&Estates April 6, 2021, 12:50 pm

      Hello Jaime, I recommend you watch our overview webinar on infinite banking with Barry Brooksby and when you’re ready, connect with him at barry@insuranceandestates.com to schedule a zoom call.

      Best, Steve Gibbs for I&E

  • Cevin Mckaskle April 17, 2021, 4:21 pm

    I need to get life insurance anyway and im also wanting to build wealth and do some investing in realistate soon .How do i get started in getting uninterrupted compounding interrest insurance ?Do i just apply for it when getting life insurance?

    • Insurance&Estates April 19, 2021, 11:51 am

      Hello Cevin, the next step I recommend is for you to connect with our high cash value life expert Barry Brooksby. Send your contact information to him and request a call at barry@insuranceandestates.com.

      Best, Steve Gibbs, for I&E

  • Cisco Leone May 18, 2021, 4:50 pm

    Interested in learning more and opening an account.
    Is it possible to roll over a 401K into a Life Insurance Compound Account?

    Thank you

  • Joe Chiti September 3, 2021, 5:52 pm

    I wish to learn more and invest in a compound interest account

    • Insurance&Estates September 7, 2021, 11:46 am

      Hi Joe and thanks for connecting. A great first step is to connect with our expert Barry Brooksby at barry@insuranceandestates.com so go ahead and send him your best contact information and request a call.

      Best, Steve Gibbs for I&E

  • Georganna Colquitte December 18, 2021, 2:55 am

    I am very interested my email me

  • John Covington February 14, 2022, 2:15 pm

    How can I start?

    • Insurance&Estates February 15, 2022, 2:25 pm

      Hello John, thanks for connecting. A great first step is to request a call with our IBC expert Barry Brooksby at barry@insuranceandestates.com.

      Best, Steve Gibbs for I&E

  • Stephanie Madden February 28, 2022, 9:14 am

    My spouse and need guidance. We need to allocate for retirement. There is too much information to share here. I would be willing to arrange a more official form of communication.

    Stephanie M.

    • Insurance&Estates March 3, 2022, 12:21 pm

      Hello Stephanie, if Barry hasn’t reached out to you, go ahead and reach out to him at barry@insuranceandestates.com to request a consulation in order to get started.

      Best, Steve Gibbs, for I&E

  • Stephone Mcclouden March 10, 2022, 10:58 am

    reaching out Regarding compounding interest account

    • Insurance&Estates March 28, 2022, 9:57 am

      Hello Stephone, the best way to get started is to watch our webinar on this topic and if you’ve already done so, go ahead and email Barry to request a call at barry@insuranceandestates.com.

      Best, Steve Gibbs for I&E

  • Elvin March 29, 2022, 8:43 am

    I am interested on a cash value life insurance policy. I live in Puerto Rico, do you have coverage here?

    • Insurance&Estates March 29, 2022, 11:49 am

      Hello Elvin, thanks for connecting. I checked with our IBC expert Barry Brooksby and he thinks there is a company that can acccomodate you. To connect with him, request a call at barry@insuranceandestates.com.

      Best, Steve Gibbs for I&E

  • Varad April 29, 2022, 4:50 pm

    Hello, how can I start putting money into a compounding interest account? What would be a good recommendation on an account type?

    • Insurance&Estates May 2, 2022, 9:06 am

      Thanks for connecting. By compound interest account here, we are referring to a mutual whole life policy that has been utilzed to hold additional cash through paid up additions. To find out more about how this works, you could request a phone conversation by emailing our expert Barry Brooksby at barry@insuranceandestates.com.

      Best, Steve Gibbs for I&E

  • Malo May 16, 2022, 4:34 pm

    Can I withdraw my current retirement and roll them into a compounding interest life insurance policy without penalties?

    • Insurance&Estates May 20, 2022, 9:25 am

      Hello Malo,

      Thanks for commenting, generally speaking, you cannot roll qualified retirement account proceeds into an non-qualified account without taxation and penalities. That said, it sometimes makes sense to cash out an invest in non-qualified assets. To learn more, you could request a meeting with one of our experts by emailing Barry Brooksby at barry@insuranceandestates.com.

      Best, Steve Gibbs, for I&E

  • Julianne May 22, 2022, 5:43 pm

    What is the cut off age for a profitable compound interest investment to begin please?

    • Insurance&Estates May 27, 2022, 10:22 am

      Hello Julianne and thanks for connecting. There isn’t necessarily a cut off age as this could depend on how your policy is designed. For example if you’re older and lump sums are applied, this can expedite profitability. To take next steps, I recommend reaching out to Barry Brooksby at barry@insuranceandestates.com.

      Best, Steve Gibbs for I&E

  • Jane June 1, 2022, 11:48 am

    Hi, can you recommend a company which had this type of Cash Value Life Insurance as a Compound Interest Account available. I have spoken to several and they offer IUL however not a compound interest account. The numbers are also much lower as far as return and growth.

    • Insurance&Estates June 20, 2022, 9:39 am

      Hello Jane, we work with top companies for this strategy and yours may vary depending on your goals.

      If you haven’t already connected with our team, a great start is to request a call with Barry Brooksby by emailing him at barry@insuranceandestates.com.

      Best, Steve Gibbs for I&E

  • Jorge pineda July 31, 2022, 8:21 pm

    i need hold life insurance we compon entered

  • Tom Devine April 13, 2023, 7:09 am

    My phone number is xxx-xxx-xxxx. Please contact me ASAP, as I’d like to purchase an IUL before filing taxes.

    • Insurance&Estates April 13, 2023, 2:24 pm

      Hi Tom, go ahead and reach out to Jason Herring directly if you haven’t connected already by emailing him at jason@insuranceandestates.com. I’ll also pass you inquiry to him to reach out to you.

      Best, Steve Gibbs for I&E

      Steven Gibbs is a licensed insurance agent, and the following agent
      license numbers of Steven Gibbs are provided as required by state law:

      Resident License; AZ agent #17508301,
      Non-resident Licenses: TX agent #2273189, CA agent #0K10610,
      LA agent #769583, MA agent #2049963, MN agent #40563357,
      UT agent #655544.

  • El Bee August 1, 2023, 7:27 pm


    What are your thoughts on the MPI strategy snd do you sell them?

    • Steven Gibbs August 3, 2023, 9:00 am

      Hello, thanks for commenting. We don’t currently sell under that particular branding; however, we do sell indexed universal life products. If you’re interested in exploring further and perhaps comparing to MPI, I recommend that you connect with our IUL expert Jason Herring by emailing him at jason@insuranceandestates.com and requesting a call. Jason has decades of experience in all aspects of permanent life insurance so I believe this will be beneficial for you.

      Best, Steve Gibbs for I&E

      Steven Gibbs is a licensed insurance agent, and the following agent
      license numbers of Steven Gibbs are provided as required by state law:

      Resident License; AZ agent #17508301,
      Non-resident Licenses: TX agent #2273189, CA agent #0K10610,
      LA agent #769583, MA agent #2049963, MN agent #40563357,
      UT agent #655544.

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