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The Power of Compound Interest and Why You Should Care


The Power of Compound Interest and Why You Should Care



Gaining control over your finances is a lofty goal that everyone should try their best to achieve. No matter how much you make, saving money is a largely important aspect to healthy finances.

Many people are stumped as to how they can save money and take control of their bank accounts. The truth of the matter, it doesn’t have to be complicated or scary. One of the most important parts of saving money is allow the power of compound interest to work for you.

What is Interest?

When you put money in the bank, you earn a certain percentage back, which is called interest. If you put $1,000 in the bank and earned 1% back, you would receive $10 back every year. In five years, you would earn $50 in interest. Although this interest can add up, compound interest has the power to earn you even more.

What is Compound Interest?

Compound interest works in a way so that you can earn even more money on your investment. When you have $1,000 in the bank earning 1% in compound interest, then the first year you would make $10; however, the next year, you would potentially make even more. During the second year of interest, the $10 you had earned previously would also earn interest. This would apply each year, so that your interest from previous years would earn you even more interest.

Why Should You Care?

Compound interest is a powerful savings tool that can earn you more money on your investments than you would make without it. A dollar here and there may not seem like much, but the truth is, it can add up quickly, especially if you are earning compound interest at a higher rate. Imagine the money you could earn if you had 5% compound interest or if you invested even more money over a longer period. The money you earn can help you control your finances.

Saving money and taking control of your financial future is an important goal to work toward achieving. Make sure that you are utilizing compound interest to your advantage and you will achieve your goals faster.