How Compound Interest Can Create Passive Income (Exponentially) Compound Interest Secrets

The power of compound interest refers to the process by which interest is added to the principal of an investment, and then, in future periods, interest is earned on the new total (the original principal plus the added interest). This can lead to exponential growth of the investment over time, as the interest itself starts to earn interest.

### Key Points to Understand the Power of Compound Interest:

1. **Compounding Frequency**: The more frequently interest is compounded, the more interest will be earned. Common compounding intervals include annually, semi-annually, quarterly, and monthly.

2. **Time**: The length of time the money is invested plays a crucial role. The earlier you start investing and the longer you let your money grow, the greater the impact of compound interest.

3. **Rate of Return**: A higher interest rate will result in more money being earned over time, magnifying the effects of compounding.

4. **Principal**: The initial amount of money invested or borrowed. A larger principal amount will lead to more interest being earned.