What is Compound Interest?

The Investment Board: Compound interest can help to supersize your savings over the long-term, but how does it work? We do the maths

Holly Black 13 March, 2020 | 10:55AM

 

 

Holly Black: Welcome to the Morningstar Investment Board. I'm Holly Black. Today, we're going to talk about compound interest. This is one of those horrible jargony words that gets thrown around a lot, but it is quite an important one to know about. Unfortunately, the official definition that's usually given by investment folk is, this is the interest you earn on your interest, on your interest, which doesn't mean a whole lot to anyone. Or if you're really unlucky, someone might show you this formula, at which point, you probably just start crying. Other people say that compound interest is the eighth wonder of the world. And I would argue that those people had probably never been to these places, each to his own.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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