Compound interest is often called the “magic” of finance because it allows your money to grow exponentially over time. It occurs when you earn interest not just on your initial investment, but also on the interest you’ve already earned.
Example:
Imagine you invest $1,000 with a 10% annual compound interest rate:
- After 1 year: $1,100
- After 10 years: $2,594
- After 30 years: $17,449
As you can see, your money grows much faster in later years due to compounding. This is why starting to save early is so powerful for long-term wealth building.
