The Power of Compound Interest

Compound interest is literally your money making money while you sleep. Here's how it works.

You put 100 dollars in a savings account with 5 percent interest. After year one, you have 105 dollars.

But year two, you earn interest on 105 dollars, not just your original 100.

That's 110 dollars and 25 cents. Your interest is now earning interest. :max_bytes(150000):strip_icc():format(webp)/COMPOUNDINTERESTFINALJPEGcopy-f248781269194135aa6044e088de7af9.jpg)

Say you're saving for a car at age 20. You start with 100 dollars monthly

at 4 percent return. By age 30, you'll have way more than the 12,000 dollars you put

in. You'll have around 14,774 dollars because compound interest added 2,774 dollars

for free The earlier you start, the more time your money has to multiply.