How Compound Interest Actually Works In Your Vault

Your Vault balance earns 4.5% APY. That's the headline number — but it's worth actually unpacking what it means, because interest isn't added to your balance once a year in one lump sum. It's calculated and added every single day.

4.5% APY is divided by 365 to get a daily rate — a little over 0.012% a day. Each day, that rate is applied to whatever your balance is that day, and the interest earned gets added straight to the balance. The next day's interest is then calculated on that new, slightly larger balance. That's what "compounding" means in practice: interest earning interest, every single day, not just once a year.

If 4.5% were just added once at the end of the year with nothing compounding in between, £100 would become £104.50. But because each day's interest immediately starts earning its own interest, the real return over a full year works out to about 4.60%, not exactly 4.5%. It's a small difference — a few extra pence per £100 a year — but it's a real one, and it only exists because of daily compounding rather than a single annual payment.

Say you had £500 sitting in your Vault and added nothing else to it. After 6 months of daily compounding at 4.5% APY, that becomes £511.38. Leave it a full 12 months, and it becomes £523.01 — all from the balance sitting there, untouched.

Every extra deposit you make starts compounding from the day it lands, not from whenever you next check your balance. Put in just the £15 Vault minimum every month for a year with no starting balance, and you'd have paid in £180 — but your actual balance comes to £183.77. That extra £3.77 is pure interest, earned because each month's £15 started compounding the moment it arrived rather than sitting still.

Scale that up — say a £1,000 starting balance plus an extra £100 a month for a year — and you'd have paid in £2,200 total, but the actual balance comes to £2,271.13. £71.13 of that is interest alone, on top of what you actually contributed.

The "See how your vault grows over time" calculator on your Vault page runs this exact same daily-compounding math, live, against your own real balance — drag the extra-deposit slider (it now goes up to £2,000 a month in £100 steps, not just £200) and watch the projection update instantly. It's the same formula used for every example above, just with your own numbers instead of ours.

Curious how the rest of the Vault works? Read how the Vault works, or join The Twenty waitlist to be notified when sign-ups open.