When you save money in a bank account or invest it, you can earn something called interest. Compound interest is like a magic trick for growing your money.
Here’s how it works:
Imagine you have $100 in a savings account that pays 5% interest per year. At the end of the year, you’ll have $105. But here’s where it gets interesting: the next year, you’ll earn interest not just on your original $100, but also on the $5 you earned in interest. So, you’ll earn a bit more, $5.25, making your total $110.25.
This keeps happening year after year, and as time goes on, the amount of interest you earn keeps getting bigger because you’re earning interest on your interest. It’s like a snowball rolling downhill, getting bigger and bigger.
The key takeaway: The longer you leave your money to grow, the more powerful compound interest becomes. So, start saving and investing early to give your money the most time to grow!
