Investment Glossary

Compound Interest - Interest earned on an original amount of money, commonly called the principle, along with interest earned on previously earned interest.

For example, if you deposit $1000 into a savings account earning 5% interest, at the end of the first year you will have $1050 in that account. The following year, you will be earning interest on that entire amount, $1050, for a total of $1102.50. After 30 years, your original $1000 investment would be worth over $4,000 without you ever having to do a thing.

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