What Is Compound Interest and How It Builds Wealth Over Time
Compound interest is often called the eighth wonder of the world — and for good reason. It’s a powerful financial concept that allows your money to grow exponentially over time by earning interest not just on your initial deposit, but also on the interest you’ve already earned. Whether you're saving for retirement, investing in stocks, or growing your emergency fund, understanding how compound interest works is essential. In this post, we’ll explore what compound interest is, how it differs from simple interest, and why it’s a key strategy for building long-term wealth. Understanding Compound Interest: The Basics Compound interest is the process of earning interest on both the principal amount and the accumulated interest from previous periods. Unlike simple interest , which is calculated only on the original amount, compound interest accelerates growth over time. This means the longer you leave your money invested, the more it multiplies—without you doing anything extra. Let’s ...