Question 1

How does compound interest work?

Accepted Answer

Compound interest pays interest on both your original principal and the interest already earned. Each period the base grows, so the next period’s interest is larger. Over long horizons this snowball dominates — the final years add far more than the early ones, which is why starting early matters so much.

Question 2

Does compounding frequency matter?

Accepted Answer

Yes, but less than people expect. Going from annual to monthly compounding at the same rate adds a little; going from monthly to daily adds almost nothing. The far bigger levers are the rate and, above all, the number of years. Time in the market beats fiddling with frequency.

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