Without interest, your money doesn’t grow. If you keep cash in a shoe box at home for a rainy day, your total won’t increase unless you add more to it. That also means the 50 bucks you borrowed from your sister won’t go up to $75 when it’s time to pay her back next Friday. But if you were to keep your savings in a bank account or take a loan from a payday lender, the outcome would be different. You’ll see an increase to your savings — or what you owe. That’s all due to compound interest — but what is it and how does compound interest work? What Is Compound Interest? Compound interest is a basic financial concept that explains how your money can grow exponentially. Your balance increases by earning interest on the interest. A bit confusing, we know. So let’s break it down with an example. If you had $1,000 in an account earning 5% interest on an annual basis, you’d end up with $1,050 at the end of the year. If your interest is compounded, you’d earn 5% of ...
How Compound Interest Can Boost Your Savings — or Keep You in Debt