Finding Compound Interest
The Power of Compound Interest
A Little Difference
When Ben Franklin died in 1790, he left $5,000 each to the cities of Boston and Philadelphia. Each city was to create a fund that would last for 200 years. The needy could borrow from the fund at five percent interest. After 100 years, each city could withdraw $500,000 from the fund, leaving the rest to work for the next 100 years. Why did Ben do it? He did it to help people understand the importance of compound interest.
What is compound interest? It's interest earning interest. For example, suppose you saved and banked $100 a year ago. It earned $2 in interest last year. This year, you'll be earning interest on $102 (original savings plus the interest earned). That might not seem like much, but understanding that simple fact can have a major impact on your financial success.
Why is compound interest important to you? Because it can turn just a few dollars today into big money over the course of your lifetime. Let's look at the ten facts you need to know about compound interest.
What's the bottom line for consumers? Often the difference between financial comfort and poverty isn't that great. Saving a few dollars a week might not seem like much, but if done consistently, it could make a big difference in your financial future.
Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report and he's a regular contributor to US News Money and CreditCards.com. You can follow Gary on Twitter or visit Gary Foreman on Google+.
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