Compound Interest Makes Money Grow
With compound interest you receive interest on interest. So if you hold an investment for a long period, the value of the investment grows very rapidly after a few years. Compound interest works its magic for investors who are able to save and invest for retirement at an early age.
For a 6 percent rate of return each dollar invested grows to $1.34 in five years, $1.79 in 10 years and $3.21 in 20 years. After 30 years the growth accelerates so $1 grows to $10.29 in 40 years and $18.42 in 50 years.
So a $10,000 initial investment
grows to $184,200 after 50 years at an interest rate of 6 percent.