Interest is the price you pay to borrow money or the cost you charge to lend money. It is the amount you pay to borrow or the amount you earn on your savings. High rates are great for savers, but not so good for borrowers. Compound interest is a means of calculating interest whereby the addition of interest over time is added to the principal sum. It applies not only to the initial principal of an investment or a loan but also to the accumulated interest from previous periods.
High-yield savings accounts reward you with a higher interest rate than traditional savings accounts, making your money grow faster as it sits in your account. It seems everywhere you look online, experts are talking about the magic of compound interest and how it can make you wealthy over time. APY, or annual percentage yield, is how much money a bank account earns in a year, including compound interest.
Compound interest is perhaps the smartest investment strategy one can take regardless of their investment of choice. The name of the game is to let your money work for you by reinvesting the interest earned, allowing your savings to grow exponentially over time. By harnessing the power of compound interest, you can significantly increase the value of your investments and savings without having to do much work.