Definition
Interest that’s calculated on both your initial principal and the interest that has been added over time. It helps your money grow faster.
What to consider
- Starting early can make a huge difference in your savings growth.
- Small, regular contributions really add up over time.
- Keep the power of compounding in mind as you plan for the future.
Real world scenarios
- After graduating, Ronnie invests a small amount each month into an index fund. Over the years, compounding accelerates his returns, helping his portfolio grow far beyond his initial contributions.
- Jenny opens a high-yield savings account and reinvests the interest. Each interest payment adds to her balance, which then generates even more interest the next cycle.
- Realizing the power of compound interest, Marcus starts saving early for retirement. He watches his investments multiply faster than simple interest would allow.
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