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How does compound interest work on an investment?



Our response:

Compound interest is not an investment in and of itself but a way to grow the money you save by investing it to earn a return. You can make your money grow faster if you also invest the money you earn (your return) along with the money you started out with. This is called compounding.

As an example, if you began with $100 that’s compounded (grows) at a 3% annual interest rate and you contributed $50 every week, your money would grow to become ~$125,000 (37% of which was earned by compound interest) in 30 years. You can use our compound interest calculator to find out how an investment can grow over time with compound interest.

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