What is compound interest?
Compound interest means you earn interest on your original money and on the interest already earned.
Compound interest is interest earned on both your original amount and the interest that has already been added. Over time, this snowball effect makes savings and investments grow faster.
It also works against you with debt.
An example
If you save 1,000 at 5% interest per year, compounded annually, you would have about 1,629 after 10 years. Without compounding, you would have 1,500.
Time matters
The earlier you start, the more time your money has to grow. A handy shortcut, the Rule of 72, estimates the years to double your money by dividing 72 by the interest rate.
Watch the debt side
Credit cards and loans with high interest can grow quickly if left unpaid.
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