The Power of Compound Interest

Let’s say you have a one time deposit of $1000 into a savings account yielding 3 percent interest on January 1.

Here is the math:
First we need to calculate the monthly interest rate (interest is paid out monthly): 3% divided by 12 months = 0.25% monthly.

After one year:
Simple: 3.00% = $1030
Compound: 3.04% = $1031.41

The difference between 3 and 3.04 is minimal. But extend that out a number of years and then you can see the difference.

Ten years:
Simple: $1304.77
Compound: $1349.35

*Keep in mind this is a one time deposit. If the $1000 was deposited every year, the return was grow exponentially.