compound interest

 Compound interest is "interest on interest," calculated on both the initial principal and accumulated interest from previous periods, causing investments or debt to grow faster than simple interest. It is a crucial wealth-building tool in savings and investments, though it can significantly increase debt 

If you invest $1000 at a 5% annual rate, you earn $50 in year one ($1,050). In year two, you earn 5% on $1,050, not just the original $1,000.

 Rule of 72: A quick way to estimate, divide 72 by the annual interest rate to see how many years it takes for your money to double 

 Interest can compound annually, monthly, or daily. The more frequent the compounding period, the higher the total return.

The longer the money stays invested, the more pronounced the "snowball effect" becomes, making early investing highly advantageous 

It allows your money to grow at a faster, compounding rate.

• Wealth Building: Essential for long-term investments, such as retirement accounts.

Conversely, compound interest on credit cards and loans means debt can rapidly grow, which is why paying only minimums can lead to high total repayment costs.