When it comes to growing wealth, one concept stands out above the rest: compound interest. It’s often called the “eighth wonder of the world” for good reason. Whether you’re saving for retirement, investing in stocks, or building a rainy-day fund, understanding how compound interest works can transform your financial future.
In this guide, we’ll break down what compound interest is, why it’s powerful, and how you can use it to your advantage—no complicated math required.
What Is Compound Interest?
Compound interest is the interest you earn not just on your original amount (known as the principal) but also on the interest that accumulates over time. In simple terms, it’s “interest on interest.”