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The short answer
Compound interest means you earn interest on your interest as well as on what you put in. The formula is A = P x (1 + r/n)^(n x t); for example, ₦100,000 at 15% a year compounded annually grows to about ₦201,136 in five years and ₦404,556 in ten, compared with ₦175,000 after five years at simple interest.
Compound interest is the reason small, early savings can matter more than large, late ones. Each period, the interest earned is added to the balance, and the next period's interest is worked out on that larger balance. The effect is slow at first and then accelerates. All rates in this guide are labelled examples, chosen to make the arithmetic clear; they are not offers or forecasts.
The formula
- A
- The amount at the end
- P
- The principal, the amount you start with
- r
- The annual interest rate as a decimal (15% = 0.15)
- n
- How many times a year interest is added (1 yearly, 12 monthly, 365 daily)
- t
- The number of years
A = P x (1 + r/n)^(n x t). Simple interest, by contrast, is P x (1 + r x t): interest only ever on the original amount.
Worked examples on ₦100,000
Example only, at 15% a year:
| Method | After 5 years | Interest earned |
|---|---|---|
| Simple interest | ₦175,000 | ₦75,000 |
| Compounded yearly | ₦201,136 | ₦101,136 |
| Compounded monthly | ₦210,718 | ₦110,718 |
| Compounded daily | ₦211,667 | ₦111,667 |
Two things stand out. Compounding adds about ₦26,000 over simple interest in five years, and more frequent compounding helps, but by less than you might think: moving from monthly to daily adds under ₦1,000. Time matters far more. Left for ten years at 15% compounded yearly, the same ₦100,000 becomes about ₦404,556, roughly double the five-year figure.
Where daily compounding shows up
Many Nigerian savings apps work out interest daily. Cowrywise, for example, says on its help centre that interest is computed and added daily and that the annual rate is fixed when the plan is created. Always check whether a rate quoted is a simple annual rate or an effective yearly yield, because the same headline number can mean different results.
Saving every month
Most people do not invest one lump sum; they add money monthly. The future value of regular monthly deposits is D x ((1 + i)^m - 1) / i, where D is the monthly deposit, i the monthly rate (r/12) and m the number of months.
Example only: ₦10,000 a month at 15% a year compounded monthly for ten years. You pay in ₦1,200,000, and the balance grows to about ₦2,752,171. More than half the final amount is interest. At 12% for five years the same ₦10,000 a month gives about ₦816,697 on ₦600,000 paid in.
Why starting early beats saving more later
Example only, at 12% a year compounded monthly. Ada saves ₦10,000 a month from 25 to 35, then stops and leaves the money invested. Bayo starts at 35 and saves ₦10,000 a month until 45. Both pay in ₦1,200,000.
| Ada (saves 25 to 35) | Bayo (saves 35 to 45) | |
|---|---|---|
| Paid in | ₦1,200,000 | ₦1,200,000 |
| Balance at 35 | ₦2,300,387 | ₦0 |
| Balance at 45 | ₦7,592,167 | ₦2,300,387 |
Ada ends with more than three times Bayo's balance from the same contributions, because her money had ten extra years to compound. That is the practical lesson: start with whatever you can, even if it is small.
A quick shortcut: the rule of 72
Divide 72 by the annual rate to estimate how many years it takes to double your money. At 15%, 72 / 15 = 4.8 years, close to the exact five-year figure above. At 8%, about nine years. It is an approximation, useful for comparing options in your head.
What eats into compounding
Tax
Interest on savings is often subject to 10% withholding tax before it is credited; Kuda's help centre, for example, says it deducts 10% on accrued interest on fixed savings. Example only: 15% less 10% of it leaves 13.5%, and ₦100,000 compounded yearly at 13.5% for five years is about ₦188,356 rather than ₦201,136. See withholding tax on interest.
Inflation
Prices compound too. Headline inflation was 14.63% year on year in September 2026, on NBS figures reported by Voice of Nigeria. Example only: a 15% return against 14.63% inflation is a real return of about 0.3% a year (1.15 / 1.1463 - 1). Compounding builds wealth only when the rate after tax beats inflation. Our guide on real returns in Nigeria goes further.
Debt compounds against you
The same maths works in reverse on unpaid loans and rolled-over credit. Clearing expensive debt is often the best "return" available. Example only: a ₦50,000 debt charged 5% a month and left unpaid for six months grows to about ₦67,005 (50,000 x 1.05^6), so the borrower owes about ₦17,005 more than they borrowed, before any other charges.
Where Pryme fits
Pryme naira Savings Boxes show their rate in the app before you choose; the Interest-free Box earns nothing by design. To see how a monthly habit might grow, try the figures here with the rate the app shows, and read building wealth on a ₦150,000 salary for a worked plan.
Questions people ask
What is compound interest in simple terms?
Earning interest on your interest. Each period's interest is added to the balance, and the next period's interest is calculated on the larger amount.
How do I calculate compound interest in naira?
Use A = P x (1 + r/n)^(n x t). For ₦100,000 at 15% compounded yearly for five years: 100,000 x 1.15^5 = about ₦201,136.
Is daily interest better than monthly interest?
Slightly. On ₦100,000 at 15% for five years, daily compounding gives about ₦211,667 against ₦210,718 monthly, a difference under ₦1,000.
How long does it take to double money at 15% interest?
About 4.8 years by the rule of 72 (72 divided by 15), before tax and ignoring inflation.
Sources
- Cowrywise Help: How much interest is offered on savings? · accessed Oct 2026
- Kuda Help: More on Fixed Savings (27 Feb 2025) · accessed Oct 2026
- Voice of Nigeria: Nigeria's headline inflation drops to 14.63 per cent (16 Oct 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.