Definition
Compound Interest
Growth calculated on both the original amount and on interest already earned, so returns accelerate over time rather than staying linear.
Compound interest means each period's gains are added to the principal before the next period's growth is calculated, so the growth curve steepens the longer money stays invested. The same effect works in reverse against you on compounding debt.
Why it matters: starting early matters more than starting with a large amount, because time is the dominant variable in the compounding formula. It is also why high-interest debt left unpaid grows faster than most people expect.
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