The Power of Compound Interest is often called the “8th Wonder of the World” because of its incredible ability to grow your money over time. It’s a concept that shows how your savings can increase exponentially, not just linearly, when you earn interest on your initial amount and on the interest that accumulates.

What is compound interest?
Instead of earning interest only on your original deposit, compound interest means you earn interest on both your principal (the original amount you invested) and on the interest that has already been added to your account. This process of earning interest on interest causes your money to grow faster and faster over time.

Why is it so powerful?
Imagine planting a small seed that grows into a tree. Each year, the tree gets bigger, and then it produces more seeds, which grow into new trees. Over many years, that single seed can turn into a forest. Similarly, with compound interest, your initial savings can grow into a large sum if you leave it invested for a long period.

The magic of time:
The longer your money stays invested, the more dramatic the effects of compounding become. Starting to save early, even with small amounts, can lead to a much larger nest egg in the future because of this compounding effect.

A simple example:
Say you invest $1,000 at an annual interest rate of 8%. After one year, you earn $80 in interest, making your total $1,080. The next year, you earn interest on $1,080, which is about $86.40, and so on. Over many years, this “interest on interest” causes your savings to grow faster and faster.

Why should you care?
Understanding the power of compound interest encourages you to start saving early, contribute regularly, and keep your money invested for the long term. It’s a key reason why time is one of the most valuable assets in building wealth.

In summary, compound interest is like a snowball rolling downhill—small at first, but gaining size and speed as it continues, creating a powerful force that can turn modest savings into a substantial amount over time. That’s why it’s often called the “8th Wonder of the World!”