What is one of the main benefits of compound interest?

One of the main benefits of compound interest is that it helps investments grow faster over time. Compound interest refers to the process of earning interest on both the initial principal and the accumulated interest from previous periods. This creates a snowball effect where, over time, the amount of interest earned becomes significantly greater as it is calculated on an increasing balance.

When interest is compounded, investors can take advantage of the growth of their money, as the returns continue to generate more returns. This can lead to significant growth in savings and investments, especially over long time frames, which is why starting to invest early can be particularly beneficial.

The idea is that as time goes on, the effect of compounding becomes more pronounced, resulting in larger amounts of interest earned compared to simple interest, which only earns interest on the initial principal. This characteristic makes compound interest a powerful tool for building wealth over time.