An early interest in compound interest

Colin gets $20 a week pocket money from his parents. He saves half, giving him $520 saved in a year. He earns 5% interest – an extra $26 over the year, which gives him $546. After the second year, he’s added another $520 to his savings, giving him a total of $1066.

With his 5% interest added on again, he has a total of $1119.30. Without earning compound interest on his savings, he would have had only $1040 after two years. Compound interest has earned him an extra $78.30 – or almost eight weeks worth of savings deposits.

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