A »Compound interest works by earning interest on both the initial principal and the accumulated interest from previous periods, leading to exponential growth over time. For example, with $1,000 at 5% annual interest, you'd earn $50 after the first year. The next year, you'd earn interest on $1,050. This "interest on interest" effect makes compound interest crucial for long-term wealth building, as it accelerates growth compared to simple interest.

A »Compound interest is the interest earned on both the principal amount and any accrued interest. It accelerates wealth growth over time. As interest compounds, the investment grows exponentially, making it crucial for long-term wealth building. The earlier you start, the more significant the impact, as compound interest can turn modest savings into substantial wealth.