Understanding the Basics of Compound Interest: A Guide for Credit Union Members

What Is Compound Interest?

Compound interest is interest earned on both your original deposit (principal) and the interest that accumulates over time. In other words, your interest earns interest—creating a snowball effect that helps your savings grow faster.

This makes compound interest one of the most effective ways to build wealth without increasing your contributions. The longer your money stays invested or saved, the more powerful compounding becomes.

How Compound Interest Works (Simple Example)

Let’s compare:

Simple Interest - You earn interest only on the original amount you deposited.

Compound Interest - You earn interest on:

• Your original deposit
• Previous interest earned

Example:

If you deposit $1,000 in a savings account earning 5% interest, compounded annually:

• After 1 year: $1,050
• After 2 years: $1,102.50
• After 10 years: $1,628.89

You didn’t add a single extra dollar—but compound interest worked for you automatically.

Why Compound Interest Matters for Your Financial Goals

1. Helps Your Savings Grow Faster
   1. Whether you're saving for a home, vacation, or emergency fund, compounding accelerates progress.
2. Rewards Consistency
   1. Regular monthly deposits—even small ones—grow significantly when interest compounds.
3. Helps You Reach Long-Term Goals
   1. Retirement savings, education savings, and long-term investment accounts benefit most from compounding.
4. Works Best When You Start Early
   1. The more time your money has to grow, the greater the results. Starting now—even with a small amount—makes a big difference later.

Where You Can Take Advantage of Compound Interest at a Credit Union

• High-Yield Savings Accounts: Earn competitive dividends that compound regularly.
• Certificates: Lock in a higher rate and grow your savings with predictable returns.
• Money Market Accounts: Ideal for larger balances with higher earning potential.
• Youth Savings Accounts: Teach kids about saving early—the best time to harness compounding.

Ask us about which option fits your goals best—our credit union team is always here to help.

Tips to Maximize the Power of Compound Interest

1. Start Now

Even a small beginning makes a huge difference over time.

2. Contribute Regularly

Monthly or biweekly deposits help your total grow steadily.

3. Avoid Early Withdrawals

Keeping your money invested allows compounding to work its magic.

4. Shop Rates Wisely

Higher interest rates make compounding even more effective—credit unions often offer competitive options compared to big banks.

A Simple Formula: The Rule of 72

Want to estimate how long it takes for your investment to double?

Divide 72 by your interest rate.

Example:

If your savings rate is 6%, your money may double in about 12 years (72 ÷ 6 = 12).

It’s not exact, but it’s a great quick estimate.

Final Thoughts: Small Steps Today, Big Results Tomorrow

Compound interest is one of the easiest and most effective ways to grow your savings—no complicated investing, no risky decisions, just steady growth powered by time.

If you’re ready to put compound interest to work, our credit union offers a range of savings options designed to meet your needs and goals. Let us help you build a stronger financial future.

Start today—your future self will thank you.