Building wealth takes time, even with the power of compound interest. Albert Einstein called compound interest "the most powerful force in the universe". Not only does your own money make more money, but the extra money your money makes also makes money for you.
How does compound interest works. Let's use an example whereby you deposit $100 in a fixed deposit account that pays 3 percent interest after a year. After the end of the 1st year, you will receive $103, which is your principal and your interest. If you place the $103 back to the account and the interest remains as 3 percent, you will receive $106.09 at the end of 2nd year.If the interest rate is higher, say 5 percent, then you see your money grow at a much faster rate with compound interest.
Do you have any idea how long does it take to double your money with a given interest rate? The "rule of 72" can give you a general idea. Divide 72 by the interest rate you get on your savings. If you are earning 4 percent, it will take about 18 years for your money to double (72 / 4 = 18). If you earn 6 percent , your money will double in 12 years.
To make your money work for you, you have to leave it in a interest bearing instrument or vehicle and let it do its job, which is to earn money. Your money cannot work for you if you let it idle by placing them under the pillow for example. Everyday that you delay putting your money to work, you lose out on the magic of compound interest.
