What Is Compound Interest?
Example: "$1,000 at 5% compound interest becomes $1,050 after year one, $1,102.50 after year two (you earned interest on $1,050, not just $1,000)."
Why It Matters
Compound interest is often called the eighth wonder of the world because of how powerfully it grows money over time. The earlier you start saving, the more compounding works in your favor. A teenager who saves $1,000 at 5% will have significantly more by retirement than someone who starts in their 30s, even if the older person saves more total dollars. Compounding also works against you with debt. Credit card balances grow through compound interest, which is why paying only the minimum can keep you in debt for years.
Try it: Use the free Savings Goal Calculator to see how compound interest makes your savings grow faster over time.
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