The Magic Of Compound Interest

compound interest

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If there was ever  time for a magical money formula, now is that time. With an economy that seems ever so sluggish, bank CD interest rates at all time lows and a stock market that seems stuck, investors need to look no further than compound interest for a solution to get their money growing again. Compound interest seems to good to be true. Its simplicity makes it seem hard but it’s a very easy concept and once you understand it you will be amazed by its magic.

Compound Great, Simple Not

There are 2 kinds of interest; compound and simple. Compound interest makes your money grow and grow and grow with little effort on your part; simple does not. Simple interest means that your interest is applied once to your original investment amount. Compound interest means that the money you invest earns money over and over and over again. Compound interest never stops giving.

How You Help Compound Your Interest

You have to help your money grow; compound interest can do miraculous things with your money but you need to take the first step. There are two important ways that you can help.

One, invest. The only way for compound interest to work is for you to invest. Your money cannot earn money if it’s not invested.

Two, start investing early. The more time that your money is invested the better compounding works. With the magic of compounding you can never play catch up. If you start saving at a young age you can invest less money and get the same or better results than you would if you start at an older age. If you wait until you are in your 50’s to start saving for retirement vs starting in your 20’s you will end up with a smaller retirement account balance. Time is money.