How does compound interest generate wealth over long periods?

Compound interest is like having a piggy bank that grows smarter over time.

Imagine you have $100 in a piggy bank. If it earns simple interest, it might get $10 every year, just like getting 10 extra candies each day. But with compound interest, the piggy bank doesn’t stop there. It takes that $10 and adds it to the original $100, making it $110. The next year, it earns interest on that whole new amount, so you get more than just 10 candies, maybe 11 or even 12!

Think of compound interest like a snowball rolling downhill. At first, it’s small, but as it rolls, it picks up more snow, and gets bigger and faster.

If you leave your money in a bank that uses compound interest, every year (or even every month), your money grows just a little bit. But over years, like 10 or 20, those little bits add up to big changes. It’s like having a piggy bank that not only gives you candies but also teaches itself how to get more candies too!