Building blocks showing increased interest

Published: August 18, 2025

Compound Interest is the long game worth playing.

When you're in school, it’s easy to focus on the here and now - classes, social life, and maybe a part-time job. But there’s one powerful financial concept that can make a huge difference in your future: compound interest. The key to playing the game is starting early, staying consistent, and being patient for the long-term win. 

It might sound like something from a math textbook, but understanding compound interest and using it early can help you grow your money with minimal effort. Here’s how. 

What Is Compound Interest?    

Compound interest is the interest you earn on both your original money (the principal) and the interest that money earns over time. In simple terms, your money makes money, and then that money makes more money.

For example: 

compoundinterestinfographic

If you save or invest $500 and earn 5% compounding interest annually: 

After 1 year: $500 + 5% = $525 

Year two: $525 + 5% = $551.25 

After 10 years: $500 grows to over $814 

The longer you leave your money invested, the more powerful compound interest becomes. 

In contrast, “simple interest” only calculates the interest on your original sum of money, the principal. The interest earned each year is not rolled back into the formula. So while you still earn some money on your savings or investment, it’s far less than you’d earn on the same amount with compounding interest.  

Recalculating the above example using simple interest on a $500 investment:  

After 1 year: $500 + 5% = $525 

After 2 years: $500 + 5% x 2 = $550 

After 10 years: $500 + 5% x 10 = $750 

Why It Matters for Students      

1. Time Is on Your Side

The earlier you start saving or investing, the more time compound interest has to work its magic. Even small amounts saved now can grow significantly by the time you graduate or start your career. 

In our example above, you may be thinking, “That’s only about $64. Why should I care?” Remember, we are only talking about $500 over 10 years here. Keep reading. 

2. You Don’t Need a Lot to Start

You don’t need thousands of dollars to benefit. Even saving $10–$20 a week in a high-yield savings account or investment app can add up over time. Remember, this is a long game in which slow and steady wins.  

3. It Encourages Smart Habits

Getting into the habit of saving and investing early builds financial discipline and sets you up for long-term success.  

 So that $64 doesn’t seem like a big deal? Let’s look at a better real-world scenario, one that is very possible for you to implement right away.  

Let’s assume you save or invest $15 per week beginning on your 18th birthday. The money earns an average rate of 5% interest, compounded monthly.  

On your 48th birthday, thirty years later, you will have $54,531.75. Yet, your principal – the amount of money you have personally saved – is only $23,400. That means you have earned over $31,000 in interest – that’s more money than you invested! That’s not a bad birthday present to give yourself.  

Chances are, as you get older and move along in your career, you’ll be able to save or invest more each year, making the payoff even larger.   

How to Start Using Compound Interest to Your Advantage       

Open a Savings Account - Look for an account with a reasonable interest rate,  no fees, and a low minimum balance requirement. Old Glory Bank’s Freedom Savings account pays a stronger rate than your average megabank, and you can open your account in minutes! 

Start Early - Don’t wait until you graduate from college and get a job. There is no reason you can’t start TODAY. Even if you can save $5 per week (be honest with yourself – you can skip the mocha latte on the way to class), you’ll start building a nice balance quickly. 

Automate Your Savings - Set up automatic transfers to your savings, so you don’t let distractions or temptations knock you off track. Let your online banking move the money on the same day each week as a matter of routine. You’ll build wealth without even thinking about it.

“I’m young. I’ll think about this later, when I’m a real adult.”

Time is the most powerful factor in compound interest. The earlier you start, the more your money can grow, even if you contribute the same amount of principal later. 

Let’s go back to our formula. Instead of starting at age 18 and saving $15 per week, let’s consider you wait until your 40th birthday, and you invest that same total principal of $23,400 in one chunk. How much will it be worth on your 48th birthday? (We challenge you to do that math: we’ll wait.) 

$23,400 compounded monthly for 8 years = $34,879.70. You’ve given up nearly $20,000 in interest by waiting.  

When Compound Interest Works Against You     

You aren’t the only one who can play the long game. When it comes to debt, compound interest can pile up on you. 

Loans, credit cards, and other debts may calculate compound interest on the money you owe. This can make it harder to catch up and pay off the debt, especially if you are only making the minimum payments. In some cases, you might even end up upside-down, when your debt accrues more interest than your monthly payment against it.  

Read our advice about managing credit, and do yourself a favor – manage your credit cards and debts wisely.  

Compound interest is like planting a tree: the earlier you plant it, the bigger it grows. As a teen or young adult, you have a powerful advantage: Time. Start small, stay consistent, and let your money work for you. 

Your future self will thank you. 

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