How Compound Interest Works (Simple Explanation for Beginners 2026)
Introduction Compound interest is often called the “eighth wonder of the world.” But what does it actually mean? In simple terms: Compound interest means earning interest on your interest. And over time — that creates powerful growth. Let’s break it down clearly. What Is Compound Interest? When you invest money, you earn returns. With compound interest: You earn returns → on your original money → and on the returns you already earned. It’s growth that builds on itself. Simple Example You invest $1,000 at 8% annually. Year 1: You earn $80 → Total = $1,080 Year 2: You earn 8% on $1,080 → $86.40 Now your total is $1,166.40 You earned interest on your interest. That’s compounding. Why Time Matters More Than Amount Here’s the powerful part: $100 per month 8% return 30 years = Over $149,000+ Small amounts + long time = massive growth. The Rule of 72 (Easy Trick) Divide 72 by your interest rate. Example: 72 ÷ 8 = 9 years Your money doubles approximately every 9 years. Simple math. Power...