Having extra money on hand is undeniably something every Black household aims to achieve. However, saving is hard for us, given the economy and racial bias in the hiring market. Regular bank accounts give us a place to store our extra funds, but compound interest is what can change our lives.
Most savings accounts have an amount of interest they pay out on the money there. This is considered basic or simple interest. It is a flat amount that is earned annually and doesn’t fluctuate. However, the rates are usually meager. Compound interest works differently.
Putting it in the most basic terms possible, compound interest is interest that you earn on interest. Compound interest also offers interest on the initial investment.
There are varying ways of earning compound interest. Depending on the account, interest can be made daily, weekly, monthly, or in some instances, annually. The shorter the earning term, the quicker money builds.
Placing our money in accounts that earn compound interest can dramatically change the game for the Black economy. Once we understand the basics of how compound interest works, we can apply that knowledge to increase our wealth even with small amounts of money.