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Practical Money Matters Radio Series

September 3, 2012
The Power of Compounding

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Learn what compounding can do for your savings funds–and how best to take advantage of it.


The best way to build a financial nest egg and beat inflation is to start saving right away. Over time, your money will grow exponentially through what's called "compounding."

That's where you put money in an investment like a savings account, bond or mutual fund, and leave it alone. Then, you reinvest any interest, dividends or matching contributions your accounts earn. This generates–or compounds–additional earnings at a much faster rate. The longer you wait to start, the harder it is to catch up. After saving two hundred dollars a month at 6 percent interest for 30 years, you'd have over $200,000. But wait five years to begin and your balance drops by about $60,000.

Bottom line: Start saving or investing now – it's in your own best interest.

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