Compound Interest: Why Starting Early Matters More Than the Rate
"Compound interest is the eighth wonder of the world" gets quoted a lot, but the actual mechanics — and why time matters more than most people think — are worth understanding properly before you pick a savings product.
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The core idea
Simple interest earns you a return only on your original principal. Compound interest earns a return on your principal plus all the interest you've already earned — so your money grows faster and faster the longer it's left alone.
Why compounding frequency matters
The same annual rate compounded monthly earns slightly more than compounded annually, because interest starts earning its own interest sooner. The difference is small in year one, but adds up meaningfully over a decade or more.
Why 5 extra years beats a 1% higher rate
Starting to save 5 years earlier at a modest rate will often outgrow starting later at a noticeably higher rate — because compound growth is exponential, not linear. Time in the market consistently matters more than chasing the best possible rate.
Frequently asked questions
Is compound interest only relevant to savings accounts?
What compounding frequency is best?
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