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Compound interest

Compound interest

The time value of money (TVM) is the idea that, due to its potential earning capacity, money at the present time is worth more than the identical sum in the future. Generally speaking, funds invested today will generate returns that will compound over time.

The Oxford dictionary defines compound interest as… “interest that is paid both on the original amount of money saved and on the interest that has been added to it”

The idea of compound interest and the effect it can have on savings and investments can be likened to the snowball effect – how something can build upon itself. This virtuous cycle leads to increasing interest and account balances growing at an increasing rate, sometimes known as exponential growth.

…Einstein famously said … “Compound interest is the most powerful force in the universe…. the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

compound interest and a savings plan
compound interest
Savings plan

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