Compound Interest

The interest you receive on interest you have already earned.


Suppose you invest $1,000 in a security that offers 10% interest compounded annualy. After one year you would have 10% more money in that account, or $1,100.

Now, suppose you were to leave that $1,100 in that account for another year. This is where you see the power of compounding. After the end of year two, you would earn 10% on $1,100 (and not just on the original $1,000), or $1,210. Specifically, your original $1,000 earned $100 and the $100 you earned after the first year got you another $10. The interest you earned is now making you money!

Fun Fact

Money that is invested at 10% interest compounded annually will double in value in about every 7 years.

Leave a Reply

Your email address will not be published. Required fields are marked *

Disclaimer and Stuff

The articles are written by personal finance enthusiasts (not certified professionals) based on their personal experience. What works for them may or may not work for you, and you should always consult a financial advisor before making important financial decisions.

In accordance with FTC guidelines, we disclose that we have a financial relationship with companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.

Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.

For additional information, please review our legal disclaimers and privacy policy.