How does compound interest multiply long-term savings?

Compound interest is like having your money grow by making new friends who also help you earn more money.

Imagine you have a piggy bank with $10 inside it. Every year, the piggy bank gives you $1 as a thank-you gift, that's simple interest. After 5 years, you’ll have $15, because $1 came in every year.

But here’s where compound interest gets exciting: if you leave that $1 in the piggy bank with your original $10, next year it will also get its own $1 gift. So now, your piggy bank is working harder, not just for you, but for the money you already earned.

This is like having a garden: each seed grows into a plant that drops more seeds, and soon you have a whole forest!

Let’s say you start with $10 in your piggy bank. With compound interest:

• After 1 year: $11
• After 2 years: $12.10
• After 3 years: $13.31

You see? Each year, the money you earned starts earning its own money, just like your piggy bank is having a little party with all its friends!