What is compound interest? 💰
Saving for the future Everyone tells you to start now, but the future is ages away, so why? I'll give you one good reason Compound interest It works like this
When you put money into a savings account, you'll earn extra money called interest If you leave that interest in the account along with the original amount, it compounds In other words, because there is now more money in the account, you'll earn even more interest next year And if you don't touch your savings, they will keep growing
Lucia and Romesh got $10,000 each from their grandma when they turned 19 They each put their money into savings accounts that earned 3% interest Lucia decides to save more, so she adds $100 per month Romesh just leaves his money to earn interest After 10 years, Lucia has twice as much money as Romesh Wow!
Romesh decides it's time for him to start saving, so he copies Lucia and puts in $100 per month Lucia, on the other hand, stops putting money into her savings account for now She knows her money will keep growing because of compound interest Here's the kicker Even though Romesh adds $100 a month, he will deposit more money for much longer than she did
It's all because she started earlier and compounding works over time As well as savings accounts, compound interest is used by all sorts of financial funds For example, it's one of the key building blocks for superannuation, which is the compulsory retirement savings scheme in Australia My 5 cents on compound interest is time is money
So the sooner you start, the better off you'll be Cha-Ching!