Compound interest helps you build wealth faster. Interest is paid on previously earned interest as well as on the original deposit or invest- ment. For example, $5,000 deposited in a bank at 6 percent interest for a year earns $308 if the interest is compounded monthly. In just 5 years, the $5,000 will grow to $6,744.
The chart to the left shows how compound interest at various rates would increase your savings compared with simply putting the money in a shoebox. This is compound interest that you earn. And as you can see from the original investment, compounding has a greater effect after the investment and interest have increased over a longer period.¹
¹From the Wealth Building Series Federal Reserve Bank of Dallas