Economics
Compound Interest
Quick fact
A dollar invested at 10% annual compound interest grows to over $12.85 after 30 years.
Why this is interesting
Did you know that a small amount of money can grow into a large sum just by sitting in a bank account for years? It's not magic—it's called compound interest.
Read the full explanation
Understanding Compound Interest
Imagine you put money in a savings account. The bank pays you interest for letting them use your money. With compound interest, you earn interest not just on the original amount but also on the interest you've already earned. It's like earning money on your earnings.
A deeper explanation
Compound interest works because the interest is added to the principal at regular intervals, and future interest is calculated based on this new total. This creates a snowball effect—your money grows faster over time. It’s important because it highlights how patience and time can significantly increase wealth, making it a key concept in personal finance and investing.