Take Advantage of Compound Interest Compound interest and time help you build greater wealth. Interest is paid on previously earned interest as well as on the original deposit or investment. For example, $5,000 deposited in a bank at 6 percent interest for a year earns $415 if the interest is compounded monthly. In just 5 years, the $5,000 will grow to $7,449.

Let's see how interest compounds on an example savings account. Assume that Mr. Saver saves $125 a month for 30 years and the interest on his savings is compounded monthly.



The chart above shows how compound interest at various rates would increase Mr. Saver's savings compared with simply putting the money in a shoebox. This is compound interest that you earn, and as you can see from Mr. Saver's account, compounding has a greater effect after the investment and interest have increased over a longer period.

There is a flip side to compound interest. That is compound interest you are charged. This compound interest is charged for purchases on your credit card. For more inform on this topic look at the Credit Management section which discusses this type of interest.