Compound interest in Switzerland: time beats everything

Compound interest is the only legal trick where money earns money that has already earned money. No complicated products, no stock-market magic — just time, regularity and a realistic rate. In Switzerland, with its low account rates, understanding the principle pays.

The formula in one sentence

Interest is added to the capital and then earns interest itself the next year. At 5 %, CHF 10,000 becomes CHF 10,500 after one year, then CHF 11,025 after two — the second year's gain (CHF 525) already exceeds 5 % of the starting capital.

Example 1: lump sum over 20 years

CHF 10,000 at 5 % per year: after 10 years approx. CHF 16,289, after 20 years approx. CHF 26,533. More than half of the final amount is pure interest. Rule of thumb: the rule of 72 — 72 divided by the rate gives the years to doubling (at 5 %, about 14 years).

Example 2: CHF 500 monthly over 30 years

Paying CHF 500 monthly at an average 5 % for 30 years means CHF 180,000 paid in — to own over CHF 400,000 at the end. The trick: the final years contribute most, because the capital already built is working. Starting ten years later requires almost twice the contributions for the same goal.

Inflation and Swiss reality

Account rates around 1 % with 1 % inflation mean a real return of zero. Building wealth needs investments with higher expected returns — broadly diversified funds or a securities-based pillar 3a. Fees are decisive: 1 % in annual costs absorbs about a quarter of the final wealth over 30 years.

Pillar 3a or free saving? The comparison

• Securities-based pillar 3a: tax deduction today (up to CHF 7,258, 2025 figures), capital locked until retirement, payout at the separate provident rate.
• Free brokerage: no deduction, but available anytime — ideal as a complement for medium-term goals.
• Worked example: CHF 6,000 yearly over 25 years at 4% gives about CHF 260,000; in pillar 3a you additionally save about CHF 1,500 in taxes yearly (at 25% marginal).
• Rule of thumb: first the cushion (3–6 months of expenses), then max out 3a, then invest freely.

The biggest enemy: fees and taxes

Two silent nibblers eat your return:

• Fees: 1.5% instead of 0.2% fund costs cost on CHF 100,000 over 20 years roughly CHF 30,000 of final wealth. Check every product's TER.
• Withholding tax: 35% on interest and dividends is deducted automatically — with a correct return you get it back in full.
• Capital gains: private gains on movable assets are in Switzerland generally tax-free — an unbeatable advantage over abroad.
• Rule of thumb: first crush costs, then optimise. The cheapest fund beats the priciest star fund almost always.

Mini case: starting ten years later

Anna starts at 25: CHF 300 monthly, 5%, until 65. Mehmet starts at 35: CHF 500 monthly, 5%, until 65. Who has more? Anna pays in CHF 144,000 and owns about CHF 458,000. Mehmet pays in CHF 180,000 and owns about CHF 340,000. Despite CHF 36,000 more paid in, Mehmet trails by nearly CHF 120,000 — no savings amount recovers the lost compounding years. Starting beats raising, always.

Run your variants through our compound interest calculator, and review your pension with SwissCalc's pension fund calculator.