How Compound Interest Works and Why It Matters
Compound interest is often called the eighth wonder of the world. It allows your money to grow exponentially over time.
What Is Compound Interest?
Compound interest means earning interest on both your original investment and the interest previously earned.
Simple Interest vs Compound Interest
With simple interest, you earn interest only on the principal. With compound interest, growth accelerates.
Why Time Is the Most Important Factor
The earlier you start investing, the more powerful compound interest becomes.
Real-Life Example of Compound Interest
Small monthly investments can grow into significant amounts over decades.
Where Compound Interest Applies
- Investments
- Savings accounts
- Retirement funds
Common Mistakes That Slow Compounding
- Withdrawing too early
- Inconsistent contributions
- High fees
How to Maximize Compound Interest
Invest regularly, reinvest earnings, minimize fees, and stay invested long-term.
Frequently Asked Questions
Does compound interest work with small amounts?
Yes. Consistency matters more than the initial amount.
Is compound interest guaranteed?
Returns depend on the investment type, but the principle always applies.
Final Thoughts
Compound interest rewards patience and discipline. The sooner you start, the greater the impact.
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