​The Power of Compound Interest & Savings

Before I have explained what interests are, but what about compound interests?

 

Compound interest means you earn interest not just on the original amount you saved, but also on the interest you’ve already earned.

 

When you have a saved amount of money in a bank, the money only sits there and as time passes it decreases it value because of natural inflation. But what would happen if instead of having that money sitting there, you “invest” it. You don’t need to know a lot about this topic to benefit from it!

 

For example, remembering the topic of interests, banks give you interest when you put your money in certain places — like a savings account or a fixed-term deposit — because they’re using your money to make more money. In return, they share a part of what they earn with you as interest.

 

Now, how does compound interests apply? It’s like a snowball rolling downhill: it gets bigger faster as it’s already grown. Means taking the descision on re-investing the amount of money you had plus the interest you have received. Saving a little now can turn into a lot later because your money keeps earning "interest on interest" (means you’re earning money on money you’ve already earned).

 

You reinvest the interest instead of taking it out. This reinvested interest starts working for you, just like your original money. The longer this continues, the more money is working — and the faster it grows.

 

The interest earned gets bigger because the total is bigger. That’s why your money doesn’t grow in a straight line — it grows in a curve (exponentially).