Compounding Interest

Interest is way to increase a store of wealth over time. Typically banks pay compounding interest on your savings account, where you get a little bit of money paid to you for lending your money to the bank to store. If you plug a little money away, you could theoretically become rich just by allowing a bank to use your money.

If you take the time to run out compounding interest in a spreadsheet, you will find that a positive compounding interest rate eventually compounds at such a fantastic increase that it becomes mind boggling. One small period of compounding increases the sums so much it’s hard to believe. This is where inflation comes in. The rate of inflation in the US is such that the “real” exponential is always negative. The US cannot allow individual people to receive compounding interest because one individual could “break” the bank.

So it is good to save, you have to. But do not believe that compounding interest will make you rich because the scoundrels that run the financial system of the US are greedy and will steal your money with inflation.