Compound Interest
Compound interest means you earn interest on both the money you originally saved and the interest you've already earned.
What it means
Compound interest means you earn interest on both the money you originally saved and the interest you've already earned. Over time, this can help your savings grow faster.
You put £1,000 into a 4% savings account. Month 1 you receive interest on the £1,000. Month 2 you receive interest on the £1,000 and the interest paid last month. This cycle continues, so each month the interest you earn grows.
Why it matters
The longer your money stays invested or saved, the more powerful compounding can become.
Albert Einstein probably didn't call compound interest the 'eighth wonder of the world' despite the popular quote.
Why does compound interest matter?
Because your money can start earning money on previous interest.