Interest Lookout
Take interest in your interest — and on it, too.

I’m sure this interest idea has caught your attention by now. But before you leap towards the nearest bank, look at those two giant mountains on the horizon. They may be the same size now, but over millions of years they’ll grow in different ways. Money in a bank can grow in different ways, too: with simple or compound interest.

With simple interest, you earn interest only on the money you add to your account. With compound interest, your account will grow faster, because once interest has been added to your account, the interest starts earning interest, too.

Suppose you have $100 in a savings account earning 3% interest.

If the account pays simple interest and you don’t add or subtract any money, you’ll earn 3% on your deposit each year, or $3. After 25 years, you’ll have a balance of $175 ($100 + (25 x $3) = $175).

But with compound interest your account will grow faster, because your interest starts earning interest, too. You would earn $3 the first year. But then, the second year you would earn $3.09, or 3% of your $103 balance. And after 25 years of compound interest, you’d have a $209 balance!

Just remember that if you add money to your account, your balance might grow a lot more. And, if you withdraw, or take money out, it might grow much less. When you add or take away from your account, you’re changing the amount you can earn as well. And when you’re building a mountain of savings, every cent counts.