What is Compounding Interest and how it will make you a Millionaire

Consider this: The Dummy’s Guide to Understanding Compound Interest

Are you ready to demystify the world of finance and unlock the secrets of wealth-building? Look no further than compound interest — the unsung hero of savvy investors everywhere. In this beginner-friendly guide, we’ll break down the basics of compound interest into bite-sized nuggets of knowledge that even the most financially clueless among us can understand. So grab your calculator and let’s dive in!

What is Compound Interest?
Compound interest is like a magical money-growing machine that works silently in the background, turning your pennies into pounds over time. At its core, compound interest is the interest earned not only on your initial investment but also on the interest that accrues over time. In other words, it’s interest earning interest, and it’s a beautiful thing.

How Does it Work?
Let’s break it down with a simple example. Say you invest £1,000 in a savings account that earns 5% interest annually. At the end of the first year, you’ll earn £50 in interest, bringing your total balance to £1,050. But here’s where things get interesting: in the second year, you’ll earn interest not only on your original £1,000 but also on the £50 interest you earned in the first year. So, instead of earning £50 in interest again, you’ll earn £52.50, bringing your total balance to £1,102.50. And the cycle continues, with your money growing faster and faster…