How Compound Interest Works (With Taxes & Inflation)

Compound interest is the process where your investment earns interest, and that interest then earns more interest over time. However, taxes and inflation can significantly impact your real returns.

Key Takeaways:

• 💡 Taxes reduce gains – Capital gains or income tax applies to interest earned.
• 💡 Inflation erodes purchasing power – $100 today ≠ $100 in 10 years.
• 💡 Compounding frequency matters – Monthly compounding grows faster than annual.
• 💡 Currency differences – Exchange rates and local inflation affect returns.