Compound interest

The interest earned over a 12 month period with the compound interest example is shown in the table opposite.

The table shows the total interest received is $1,027.36 less $1,000, which is $27.36.

This is $0.36 higher interest than in the example where the interest is paid once in the year.

This might not seem like much, however, over 20, 30 or 40 years it can add up to thousands, hundreds of thousands and in some cases millions, depending on how much money is invested and how much the interest is.

Note: the power of compound interest can be applied to all asset classes.