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Jodi Beggs

A Reality Check on the Miracle of Compound Interest...

By January 28, 2013

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Many personal finance courses (and even high-school economics courses, if I remember my own experience correctly) are quick to attribute the benefits of saving to the concept of compound interest. Compound interest is simply the situation where interest earned on one's saving is rolled back into savings and then itself earns interest, creating somewhat of a snowball effect. While the effects of compound interest (versus simple interest, where interest earned is not rolled back into the savings base) are not negligible, it's not really the miracle that some people make it out to be. This article, complete with a helpful comic, gives some numerical examples to explain why.


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