Compound Interest

While keeping your savings underneath you mattress may seem a secure location, your money is not living up to its full potential; when it's resting safely in the hands of the bank, compound interest may be applied to it. 

This interest is money you are given for allowing your money to be loaned out in the bank; this compound interest also works the other way, in that when you borrow money, you must pay the bank a fee for using it. Back to savings: in reality, your money does not just sit in a drawer in the bank, but it is loaned out to other bank patrons. For allowing this transaction, the bank awards a certain amount of interest. Let's say for example, you deposit one hundred dollars into a bank account, with a compound interest rate of 10% applied annually. If you were to leave it untouched for three years, your new balance would be $133.10, according to www.moneychimp.com; for just simply allowing your money to sit, you earned $33.10, not bad for not doing any work. 

However, the simple idea of not spending any of that $100 dollars could be a challenge for many. Yet, if the initial deposit were a bit more, perhaps that urge would be quelled; imagine what $20,000 could do!