Compound Interest

Compound interest is a financial concept that refers to earning interest not only on the original amount invested (the principal) but also on the interest that has already been added over time. In simple terms, it means your money can grow at an accelerating pace because each period’s gains start generating their own gains. For example, if you invest money in a savings account or financial product that compounds annually, the interest earned in the first year is added to your initial investment, and in the second year you earn interest on this new, larger total. Over longer periods, this “interest on interest” effect can significantly increase the value of an investment, making compound interest one of the most powerful tools in long-term wealth building. It is widely used in savings accounts, pensions, and investment portfolios, and its impact becomes stronger the longer the money remains invested and the higher the interest rate applied.