How does compound interest work to grow investments over time?

Compound interest is like having your money grow by making friends who also help it grow.

Imagine you have a piggy bank. Every time you add coins to it, those coins start working for you, they make more coins every year, just like how a friend might give you extra candy if you share some with them.

Let’s say you start with 10 candies (like money). If your piggy bank gives you 1 more candy each year, after one year, you’ll have 11 candies. The next year, the piggy bank gives you 1 candy from the new total of 11, that means you get 12 candies! It’s like the candies are getting better at growing because they’re using what they already made.

If this happens for many years, the number of candies grows faster and faster. That’s why people say compound interest is powerful, it’s not just about making a little bit more each year, but letting that growth build on itself, like stacking blocks one on top of another.