How does compound interest work?
Explain it like I'm 16
Compound interest means interest can be earned on earlier interest as well as on the original savings. Over time, that can increase growth.
A real-world example
With £100 at a hypothetical fixed 5% annual rate, the first year adds £5. If it remains saved, the second year adds £5.25, leaving £110.25. This ignores tax and assumes annual compounding with no transactions.
Example 1 of 1
Common misunderstanding
A 5% annual rate does not mean you receive 5% every month. The stated time period matters.
What next?
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