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Compound interest is interest earned not only on your initial money, but also on the interest that money has already earned.
In Depth
It's like earning interest on your interest, making your money grow faster over time. The longer your money is invested or saved, and the higher the interest rate, the more powerful compounding becomes. This principle is key for long-term wealth building, as even small amounts can grow significantly. It applies to both investments growing and debt increasing.
Example
If you invest $1,000 at 5% interest compounded annually, after one year you earn $50, but in the second year, you earn 5% on $1,050, not just the original $1,000.
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