Why compounding frequency matters less than time
Compound interest means interest earning interest. Simple interest on $10,000 at 7% pays $700 every year forever; compound interest pays $700 in year one, $749 in year two, and $1,340 by year ten, because each year's interest joins the balance and earns in its own right. Over a decade the difference is modest. Over three, it is the entire investment.
Time dominates everything else in the formula. Because growth is exponential, the final years contribute far more absolute money than the early ones — the last decade of a 40-year run typically produces more growth than the first thirty combined. This is why starting early beats contributing more: $200 a month from age 25 generally finishes ahead of $400 a month from age 40, despite half the total contributed.
Compounding frequency — daily, monthly, annually — matters much less than the marketing around it suggests. At 7%, annual compounding yields exactly 7%; monthly yields about 7.23%; daily about 7.25%. The gap between monthly and daily is roughly two hundredths of a percent. Check the APY rather than the frequency — it already folds the compounding in, which is precisely what it exists for.