Compound Interest

Explanation

Unlike simple interest (calculated only on the original amount), compound interest is recalculated on the growing balance each period, so earnings themselves start earning. The effect is small at first and accelerates sharply the longer the money is left untouched — which is why starting early matters more than the exact amount you start with.

Example

1,000 saved at 10% annual compound interest becomes 1,100 after year one, but 1,210 after year two (10% of 1,100, not of the original 1,000) — and roughly 2,594 after ten years.