Visualizing the Extraordinary Power of Compound Interest
The power of compound interest is so compelling, that it’s been often called the “eighth wonder of the world”.
Find out why this concept is so fundamental to personal finance in the following infographic:
Think you already know how to use and calculate compound interest?
Check out this exercise created by Next Gen Personal Finance and see how you do. There are also many other free personal finance lessons available in the activities section of their website.
What is Compound Interest?
Simply put, it’s interest on interest.
In the first compounding period, that interest is small – but in the long run, interest on interest is a big deal!
How interest compounds depends on three variables:
Interest Rate: The rate earned from savings or an investment
Time: The length of time money is left to compound
Taxes: The timing of taxation can make a big difference
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Too bad our need to purchase material things and debts / loans may minimize the gains
Yao Ndri Germain
In example #3, what is the assumed interest rate??
It’s at 7%, which is the average return of the stock market over time. We’ve added that point in now (above that visualization). Thanks for mentioning that!