Understanding compound interest is powerful from "summary" of Know Your Money by
Understanding compound interest is like having a secret weapon in the world of finance. It may seem like a simple concept, but the power it holds is immense. Compound interest is when the interest you earn on an investment or savings account is added to the principal, and then the interest is calculated based on the new, larger amount. The key to understanding compound interest is time. The longer you allow your money to grow, the more powerful compound interest becomes. This is due to the fact that your interest earns interest, creating a snowball effect that can significantly boost your savings over time. For example, if you invest $1,000 in a savings account with an annual interest rate of 5%, after one year you will have $1,050. In the second year, you will earn interest not only on ...
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