What is Compound Interest and How Does It Work?
Learn how compound interest can help your savings grow exponentially over time and why it's called the eighth wonder of the world.
Financial Insights
Understanding Compound Interest
Compound interest is the interest you earn on both your original money and on the interest you keep accumulating. It's often called the "eighth wonder of the world" because of its powerful effect on growing wealth over time.
Simple Interest vs Compound Interest
Simple interest is calculated only on the principal amount. Compound interest is calculated on the principal amount plus accumulated interest.
• With simple interest: $3,100
• With compound interest: $7,612
That's more than double the growth!
Why Compound Interest is Powerful
- Exponential growth: Your money grows faster each year
- Time is your friend: The longer you invest, the more dramatic the growth
- Small contributions matter: Regular investments significantly boost results
Real-World Applications
Compound interest works in:
- Savings accounts
- Retirement funds (401k, IRA)
- Investment portfolios
- Even in reverse with compound debt
Use our compound interest calculator to see how your money can grow over time.
Ready to Crunch Your Numbers?
Use our financial calculators to apply these concepts to your personal situation.
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