Compound Interest

With compound interest, the interest you earn is added back to the principal and then earns interest itself. Because interest breeds interest, the growth accelerates the longer it runs. Simple interest draws a straight line; compounding draws a curve that keeps steepening.

You can estimate the speed with the rule of 72. Divide 72 by the annual return and you get the years it takes to double: about 10 years at 7%, about 18 at 4%. Starting a decade earlier with the same money can double the final figure.

That makes time, not return, the key ingredient. Saving 300 a month at 7% for 20 years builds roughly 150,000; stretch it to 30 years and it passes 360,000. The period grew by half, but the result more than doubled.

Debt compounds in exactly the same way. Revolving credit card balances and high-rate loans turn that same force against you, which is why paying off expensive debt often beats investing on pure arithmetic.