Compound Interest

"The earlier you start, the harder your money works for you."

CFPB: Long-term financial planningMyMoney Five: SAVE & INVESTCEE Standards: Saving & InvestingFDIC Money Smart: Growth of savings over time

Why It Matters

Albert Einstein reportedly called compound interest the "eighth wonder of the world." Whether or not he said it, the math is undeniable: money invested early grows exponentially. The difference between starting at 16 vs. 26 isn't just 10 years — it's potentially hundreds of thousands of dollars. Time is the most valuable ingredient in building wealth.

Key Concepts

Compound Interest

Earning interest on both your original principal AND on the interest you've already earned — so your money grows exponentially, not linearly.

Example

$1,000 at 7% simple interest for 30 years = $3,100. At compound interest = $7,612. Same rate, enormous difference.

Principal

The original amount of money you invest or deposit before any interest is added.

Example

You invest $500. That $500 is the principal. Everything earned on top of it is compound growth.

Compounding Frequency

How often interest is calculated and added to your balance. Daily compounding grows faster than monthly, which grows faster than annually.

Example

$10,000 at 5% annual interest: annually = $16,289 after 10 years; daily compounding = $16,487.

Rule of 72

A quick mental shortcut: divide 72 by the interest rate to estimate how many years it takes for money to double.

Example

At 7% return, your money doubles in approximately 72 ÷ 7 = ~10.3 years.

Early Investing Advantage

Starting to invest even small amounts early dramatically outperforms investing larger amounts later, due to compound growth over time.

Example

Investing $100/month from age 16–26 (10 years, $12,000 total), then stopping, outperforms someone investing $100/month from age 26–66 (40 years, $48,000 total) at a 7% return.

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Did You Know?

If you invest $1,000 at age 16 and never add another dollar, at a 7% average return, it grows to over $21,000 by age 65. Wait until age 36 to invest that same $1,000, and it only grows to about $5,400.

Source: U.S. Treasury / MyMoney.gov — The Power of Compound Interest

Quick Tips

✓Start investing even tiny amounts now — $10/week at 7% return from age 16 becomes over $200,000 by age 65.

✓Reinvest all dividends and returns — never withdraw compound growth early.

✓Use a compound interest calculator (investor.gov) to see exactly what your money could become.

✓The stock market has returned an average of ~7% annually (inflation-adjusted) over the past century — time in the market beats timing the market.

Learning Objectives

01.Explain compound growth
02.Compare early vs. late investing
03.Understand exponential returns
04.Recognize reinvestment benefits

Standards Alignment

Framework	Competency Area
CFPB	Long-term financial planning
MyMoney Five	SAVE & INVEST
CEE Standards	Saving & Investing
FDIC Money Smart	Growth of savings over time

Official Resources

TreasuryCompound Interest Calculator

CFPBCFPB — Saving & Investing

MyMoneyMyMoney Five — Save & Invest

CEECEE Standards — Saving & Investing

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