Compound interest is interest on interest: what you earn also starts earning.
A simple example
Imagine US$ 1,000 earning 10% in one period:
- After the 1st period: US$ 1,100.
- After the 2nd: US$ 1,210 (the 10% now applies to 1,100).
- After the 3rd: US$ 1,331.
Growth accelerates over time, because the base increases.
What this teaches
- Time is the greatest ally: starting early matters more than starting with a lot.
- Reinvesting what you receive makes the base grow.
- The same applies in reverse: debts with compound interest grow fast.
This example is just math. It does not represent the return of any product.
Summary
- Compound interest makes earnings also earn.
- Time and reinvestment are what accelerate growth the most.