Can you take advantage of the power of compound interest?

It may seem impossible to save what you need to afford your kids’ education and also put enough away for retirement. But even though you may not know it, you have a powerful ally on your side – compound interest.

So if you have $1,000 in an account and earn 3% interest, you’ll have $1,030 at the end of one year, but $1,061 after two years. And the more you contribute, the faster the account will build. The real power comes over time, as the account continues to grow exponentially based on the principal times interest.

Why is this important? Because it can help you achieve those long-term savings goals, like saving for your children’s college education or retirement. With the power of compound interest, if you put $2,500 into a college savings account each year earning 3% interest, it would be worth $47,892 at the end of 15 years.

You can also apply this concept to retirement savings. So if you put $7,000 in a retirement account each year that earns 3% interest, it would be worth $343,019 after 30 years. That’s why the time value of money depends on the power of compound interest.

If you start early and save in an account that can provide you with growth, you can have a much greater amount than if you buried that money in the back yard. So use this power to your advantage while you can.

The information provided here is for illustrative purposes only and does not represent the performance of any specific investment or take into account contract charges, fees or taxes. It should not be considered an individualized recommendation or personalized investment, tax or legal advice.