# What is Interest?

April 16, 2021

What is the key to making money over time?

Albert Einstein called it “the eighth wonder of the world”!

Warren Buffet considers it “the best strategy (to build wealth), bar none.”

If your money grows steadily, you’ll make money, but you might not turn $100 into $14,000 in your lifetime.

Compound interest changes the shape of the hill, and the way you get to the top.

To know what compound interest is, we have to answer: what is interest?

Let’s say that Nina needs $10 today.

Maria offers to give her $10 now.

But, in return, Nina will have to pay back, not just the $10, but also an additional $1 for every month she has not paid Maria everything she owes.

The first ten dollars that Maria lends is the principal. The additional $1 a month is interest.

You can lend money, like Maria, but to the government. This is called buying a bond. The government will pay back the money you lent them, plus interest.

How can all those single dollars add up to more than the principal? Tune in next week to find out!

Sources:

https://www.nerdwallet.com/banking/calculator/compound-interest-calculator