Compound Interest

Compound interest means earning interest on both the original amount of money and the interest already earned. In simple terms, compound interest is interest growing on top of interest. Compound interest is important because it can help money grow faster over time, especially when it is left invested or saved for many years. The longer the money stays invested, the more powerful compounding can become. For example, if you invest $1,000 and earn 5% interest, you earn $50 in the first year. If that interest stays invested, you can earn interest on $1,050 the next year. Compound interest can work for you or against you. It helps savings and investments grow, but it can also make debt grow faster if unpaid interest keeps adding up.