Compound Interest

Compound interest is interest that earns interest. The growth isn't a straight line, it's a snowball rolling downhill: the bigger it gets, the faster it grows. Put $1,000 in at 10% a year. Year one you earn $100. But year two you earn 10% of $1,100, which is $110, because last year's interest is now also earning. Each year the base is larger, so each year's gain is larger. The headline consequence is the rule of 72: divide 72 by the interest rate to estimate how many years until your money doubles. At 8%, that's about 9 years. The two levers that matter most are time and rate, and time usually wins because compounding rewards patience more than a slightly higher rate.