Compound Interest

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A calculator and pencils sit on light blue desktop. Text, Understanding compound interest.

Compound interest is a powerful tool for growing savings and investments.

Desktop scrolls to reveal notepad, stapler, paper clips, scissors, tape. Text, Here's how it works.

There are two basic types of interest: simple and compound.

Hand uses calculator. Text, Simple interest builds on the principal.

Say you deposit $10,000 and earn 2% simple interest annually. Each year, you'll earn $200 interest.

Hand adds two stacks of hundred dollar bills. Text, With compound interest, you earn a larger amount of interest each year.

That's because compound interest builds on the principal balance plus accrued interest. Bar graph and passbooks added to desktop.

Text, If you deposit $10,000 at a 2% interest rate compounded annually, you'll earn $200 interest in year 1, and $204 interest in year 2. Hand adds stacks of hundred dollar bills.

Text, The longer you let your money grow, the faster it will grow. Ledger with calculations on desktop. Hand adds more hundred dollar bills.

Text, U.S. Bank. U.S. Bank dot com, slash financial I-Q

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Copyright 2019, U.S. Bank National Association. Member F-D-I-C.