 TITLE: How Does Compound Interest Work? CONTENT: Say you put $1,000 into a savings account with a 10% interest rate (an unrealistically high rate, but helpful for examples) that compounds annually. At the end of the first year, you'll have $1,100—the initial $1,000 in principal plus $100 in interest. That $100 is \"simple\" interest—interest based only on the principal amount invested.\nAt the end of the second year, you'll have $1,210—the $1,100 from the previous year plus $110 in added interest (10% of $1,100). Instead of calculating interest based only on your original principal, compounding interest calculates your annual interest based on the principal plus any previous interest you earned on that principal.\nBy the end of the 10th year, you'll have $2,594, more than double your initial savings (without adding any more of your own money after your initial investment). You can thank compound interest for that. END