What Is Compound Interest?
Interest you earn on both your original money and on the interest it has already earned — so growth speeds up the longer you leave it.
Simple interest only ever pays you on the amount you first put in. Compound interest reinvests every bit of growth, so each round is calculated on a bigger balance than the last. Left alone long enough, the growth starts out-earning your own contributions.
The two levers that matter most are time and consistency. Because every year builds on the one before it, the final stretch of a long run does far more work than the start — which is why beginning early, even with small amounts, beats waiting until you can invest more.
Put $1,000 in at 7% and leave it. Year one adds $70. But by year 30 the balance is around $7,600 — most of which is interest earning interest, not money you deposited.
Key points
- Growth accelerates over time rather than staying flat.
- Time on the clock matters more than the exact rate.
- It works against you too — on credit-card balances you carry.
Put it to use
Learning the basics? Follow the whole path from saving to investing.