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The Power of Compound Interest: A Key to Building Wealth
Compound interest is one of the most powerful concepts in personal finance.
WHAT IS COMPOUND INTEREST?
Simply put, it’s earning interest on interest.
HOW DOES IT WORK?
- When you make an initial investment, your principal starts accruing interest.
- As you earn interest, the account balance grows.
- Over time, you continue to earn interest on the growing balance.
- This leads to the exponential growth of your investment’s long-term.
COMPOUND INTEREST VARIABLES
Principal – The amount of money initially invested
Interest Rate – How much interest you earn
Compound Period – How frequently interest compounds – daily, monthly, or annually
Time – How long the money is left to compound
COMPOUND INTEREST IN ACTION
See what difference compound interest can make in the case of Julian vs. Jade.
Assuming they open the same account with a 7% annual interest rate.*
Opens at age 35
Invests $800 per month
Opens at age 25
Invests $400 per month
Total Contributions Saved by Age 65
Total Assets at Age 65
Time matters: Jade has about $74,000 more than Julian by age 65, despite saving less overall.
The earlier you start saving, the more exponential growth can occur. But it’s never too late. You can harness the power of compound interest at any time.
Talk to a financial professional about how you can start saving today.
*This is a hypothetical interest rate that is not representative of any specific account