One magic word — compounding

Banks do a nice thing when you have money in a savings account  — they pay you interest. Then they wait a while and pay you interest on the interest! This is called compounding interest, and it can be a very powerful factor in increasing your financial wealth over a period of time. Because of compounding interest, a very small amount of money saved regularly when you are young can bring a huge payoff later in life.

Let’s say you deposit $1000 in a savings account when you are 15. You leave the money in that account for 30 years and it earns an average of 3% interest. In 30 years, that $1000 will have grown to $2,243 without you adding one more penny to the account. If you were able to earn 5% interest on that $1000, it would become $4, 320 in 30 years.