Compound interest is interest earning interest. Month one, your money earns a little. Month two, the money plus that little bit earns a little more. Nothing about it feels impressive at the start, which is exactly why people underestimate it.
| After 10 years | $34,800 |
| After 20 years | $104,800 |
| After 30 years | $245,400 |
Read the middle column twice. In the second decade you add the same $24,000 as in the first, but the balance grows by $70,000 instead of $34,800. The snowball does the extra work.
Starting at 25 instead of 35 is worth more than finding extra money later. Ten extra years at 7% more than doubles the ending balance, and you never had to save a dollar more per month to get it. The deposit you skip in your twenties is the most expensive one.
Compounding works against you just as hard. A loan or a credit card balance is the same snowball rolling the other way, usually at a much uglier rate. That is why paying off expensive debt beats almost any investment.
Try your own numbers in the savings growth calculator.
Source: Investor.gov compound interest calculator (U.S. Securities and Exchange Commission). Figures here use monthly deposits at a steady 7%, rounded.
Educational content, not financial advice. Real returns move around and are never guaranteed.
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