2 min
Compound interest: friend or enemy
Interest that earns interest. On savings it helps you; on debt it sinks you.
Compound interest means interest gets added to what you have, and next month it earns interest too. Over time, it grows faster and faster.
Example
Save $100 a month earning 5% a year, and in 10 years you've put in $12,000 and have about $15,500. The extra $3,500 is compound interest working for you.
Debt works the same way in reverse: unpaid interest is added to the balance and you're charged interest on that interest. That's why it pays to start saving early and pay off the most expensive debt first.