What’s the Difference Between Compound Interest and a Compound Fracture?

That’s a dumb question but it got your attention.

Compound interest has been around a while. It is thought to have originated in 17th century Italy. Think of compound interest as interest paid on interest. In other words, interest calculated on the amount of money you save or invest along with all of the interest you previously earned. Compound interest will make money grow at a faster rate than simple interest, which is calculated only on the amount invested or saved.

Where things really get “interesting” (lame pun intended) is when you let your investment grow for a long time. Check out the example below.

Starting at age 25 Susan invests $50,000 over 10 years and ends up with more money at retirement than Bill who started 10 years later and invested 3X as much over 30 years. How’s that possible? Compound interest.

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