compound interest

Compound Interest Explained: How Your Money Grows Over Time

Compound Interest Explained: How Your Money Grows Over Time A classic early-start scenario shows why age 22 beats age 35. Someone who opens a Roth IRA at 22 and puts in $200/month might feel like they can barely afford it on top of rent, but it is worth doing anyway. Those $200 monthly contributions from ages 22-35 (just $31,200 total) can be worth over $180,000 at age 42. Money contributed after 35 barely catches up by comparison. That's compound interest: the earlier dollars do almost all the heavy lifting. Compound interest is interest earned on both your initial investment and the accumulated interest from previous periods—it's essentially "interest on interest." This creates exponential growth that can transform modest regular investments into substantial wealth over time. Use our Compound Interest Calculator(/finance/compound-interest-calculator) to see exactly how your money can grow. What Is Compound Interest? Compound interest differs from simple interest, which is...