The Power of Compound Interest
If there’s one financial principle that quietly builds wealth in the background, it’s compound interest. While it starts slow, it gains momentum over time.
What is Compound Interest?
In simple terms, compound interest means you earn interest not just on your original investment, but additionally on the interest that the investment earns. Your money grows exponentially because the returns generate their own returns. Similar to a snowball effect.
Here’s how it works:
Let’s say you invest $1,000 at a 10% annual interest rate. After one year, you’ll have $1,100. The next year, that 10% applies to $1,100, not just your initial $1,000. Over time, that small difference adds up dramatically.
Why does it matter?
The earlier you start, the more time your money has to grow. You don’t need to invest huge amounts, consistency and time are the secret. It’s not about investing more, it's about investing early.
The Takeaway:
Compound interest rewards patience. Whether it’s in a HYSA, brokerage account, retirement plan, or any other investment account, the goal is to start, stay consistent, and give your money time to work. The magic isn’t in trying to time the market - it lies in giving your money time to grow in the market.₁
Fernando, J. (n.d.). The power of compound interest: Calculations and examples. Investopedia. https://www.investopedia.com/terms/c/compoundinterest.asp
