Comp 💡 What is compound interest?
Comp 💡 What is compound interest?
Your investment firm pays you interest on money held in your money market fund. Right now that is around 4%. If you don’t spend that interest, you then earn compound interest, which isinterest that earns interest. You don’t just earn on your original balance (the principal)—you also earn on the interest added along the way. Over time, this creates exponential growth.
📊 How it works (example at 3.5%):
· Year 1: $6,000 grows to $6,210 (same for simple or compound).
· Year 2: Simple interest → $6,420. Compound interest → $6,427.35.
· After 10 years: Simple interest = $8,100. Compound interest = $8,460.