How Compound Interest Can Help You Save

Compound interest makes your money grow faster because interest is calculated on the accumulated interest over time. Compounding can create a snowball effect as the initial investments and income earned from those investments grow together. With compound interest, you’re earning interest on interest.

Compound Interest vs. Simple Interest

Compound interest is calculated on both the principal and the interest accumulated over the preceding period. It differs from simple interest in that interest is not added to the principal when calculating interest for the subsequent month.

How It’s Calculated

Compound interest is calculated by multiplying the initial loan amount, or principal, by the one plus the annual interest rate raised to the number of compound periods minus one. This will leave you with the total loan sum, including compound interest.

Give It Time

Over time your interest can seriously add up. Saving early and often can put the power of compound growth in your favor by putting your money to work—so you don’t have to! Thanks to compound interest, your savings account balance would accelerate over time as you earn interest on increasingly more significant balances.

Watch It Grow

Compounding can work to your advantage regarding your investments and be a potent factor in wealth creation. Exponential growth from compounding interest is also crucial in mitigating wealth-eroding factors, such as increases in the cost of living, inflation, and reduced purchasing power.

The Compound Effect

Compound interest is arguably the most powerful force for saving and generating wealth. There are records of people from all walks of life using compound interest to become rich for thousands of years.

Compounding interest is a blessing for young people, as they have the most time to save. The long-term effect of compound interest on savings and investments is indeed miraculous. It grows your money much faster than simple interest and significantly increases wealth.