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How Does Compound Interest Work?

You don’t have to be a financial expert to understand how compound interest works. Compound interest allows you to earn interest on interest earnings as well as your principal at the end of each compounding period.

Keep reading to learn how including savings tools with compound interest can benefit your savings plan.

learn about compound interest

Compound Interest Creates Returns

Understanding how compound interest works can motivate even the most reluctant savers to put money into accounts with compound interest. It’s actually quite simple—the interest you earn on your principal is added to the principal.

During the next compounding period, you will earn interest on the original principal plus the earnings, thus increasing your overall earnings. As your principal grows with additional interest earnings, so do subsequent earnings for an ever increasing return on your money. 

The more frequently interest is compounded, the faster your principal grows and the more money you can earn from your original deposit.

How to Calculate Compound Interest

You can calculate how much an initial deposit earns with compound interest by using this compound interest calculator. This tool allows you to enter the following:

compound interest is important

Why Is Compound Interest Important?

Even a small amount of money can generate a substantial sum over time. Opening a savings instrument with compound interest when you are young can help build a healthy savings balance from a modest initial deposit. The key is to start saving early and to make regular contributions.

Start Saving with Synchrony Bank

Now that you are familiar with how compound interest works, think about opening a savings account today. Synchrony Bank offers a range of deposit products that allows you to earn competitive returns.

Visit us online to open an account or call 844-345-5789 to speak with one of our banking representatives.

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Sources:

The Calculator Site: thecalculatorsite.com/articles/finance/compound-interest-formula.php

Bankrate: bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx


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