Compound Interest

Compound interest is interest that is earned not only on the original principal amount but also on the accumulated interest from previous periods.

It’s often described as “interest on interest” and is a powerful tool for growing your savings over time.

The more frequently interest is compounded (e.g., daily, monthly, quarterly, annually), the faster your money will grow. For example, if you invest $1,000 at a 5% annual interest rate compounded annually, you’ll earn $50 in interest in the first year.

In the second year, you’ll earn interest on the original $1,000 plus the $50 in interest from the first year, resulting in a slightly higher interest payment.

Over time, the effect of compound interest becomes more significant, allowing your investments to grow exponentially.