How to Make Compound Interest Work for You

Compound interest turns your saved money into a powerful income-producing tool that can help you become rich, and stay rich, for a long time.

Compounding is the process of creating income on assets through reinvested earnings. For it to generate money, you need reinvestment and time. The more time you provide your investment, the faster you can accelerate the potential to generate more income from your original investment.  For example, should you invest $1,000 in an account and have $1,100 in the account after one month, you would reinvest the whole amount of $1,100 thereby generating a return on your principal investment plus the interest or gain obtained from the investment.  This tool allows you to grow your assets but does not allow for ongoing income or cash to be pulled from your account to support expenses.

Make the Most Out of Compound Interest
The best way to take advantage of compound interest is to save money as early as possible. If for example one person invests at age 25 compared to someone who started at 30, the younger person will earn more in interest when they both reach 50 years old even if both invested the same amount of money at the same interest rate.

The sooner you start with saving at a compound interest, the more money it will earn over time.

The growth of investing in compound interest starts slowly as the base of your savings slowly grows along with the interest earnings. You will then see a sharp increase once your savings and interest earnings accumulate over time.

Time and reinvesting makes compound interest work for you, that is why it is important to leave the earned interest and principal alone to make it grow bigger as you age. Use other sources of income or another savings account to pay for emergencies to make sure your investment in compound interest works.

Things You Need to Know About Compound Interest

1. It works as a double-edged sword. It works excellently if you save on a regular basis; as your principal increases, so will your interest earnings. It decreases savings at a fast rate if you borrow money.
2. You do not need to be Wall Street savvy to invest in compound interest. All you need is time and money.  Speak with your financial institution about the best investment and savings opportunities for you.
3. You earn more interest if you choose to compound quarterly instead of yearly.
4. Time is definitely your ally because as the money compounds, the faster you will earn.
5. Today’s low interest rates may deter you, but if you are willing to wait, you will see your money grow when you reach a certain age or retirement.
6. Sacrifice now and reap the benefits later.
7. You do not need to invest a lot of money to take advantage of compound interest. Save enough and see the money grow over time.

When it comes to compound interest, it really isn’t about whether you’re saving a huge amount or you’re working with a small balance. It’s all about making your money work for you. Don’t forget - it's important to save but it is also important to keep up on your bills.  Don’t fall behind on routine expenses because you have to keep saving!