What are Compound Interest?
Compound interest is interest calculated on the original value plus the interest already accrued. Unlike simple interest (which only applies to the initial value), compound interest grows exponentially.
Practical example
R$ 10,000 invested at 10% per year:
| Year | Simple Interest | Compound Interest |
|---|---|---|
| 1 | R$ 11,000 | R$ 11,000 |
| 5 | R$ 15,000 | R$ 16,105 |
| 10 | R$ 20,000 | R$ 25,937 |
| 20 | R$ 30,000 | R$ 67,275 |
| 30 | R$ 40,000 | R$ 174,494 |
The Rule of 72
To find out how many years it takes for your money to double, divide 72 by the interest rate:
- 12% per year → 72 ÷ 12 = 6 years to double
- 8% per year → 72 ÷ 8 = 9 years to double
Why starting early matters
Someone who invests R$ 500/month from age 25 to 65 (at 10% per year) accumulates R$ 3.2 million. Someone who starts at 35 accumulates R$ 1.1 million. 10 years of difference = 3x less money.
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