Youth has its advantages when it comes to compounding interest. Here’s how it works. Let's say you deposited $1,000 in a 12-month certificate of deposit (CD), and your balance is $1,010 at maturity. Then, instead of withdrawing the $10 in interest earnings, you renew your CD for another 12 months under the same terms. Now you'll earn interest on your initial deposit plus the interest you've already earned. This is an example of compounding interest, and it is an excellent way to start saving money for the future. While that $10 may not seem like a lot of money, keeping it in the CD helps you earn more interest, and if you continue the same renewal cycle without making withdrawals over a period of years, your balance grows even faster—and you don't have to do anything but watch it grow. That, in a nutshell, is how compound interest works: with time and consistent saving, you can accumulate a substantial nest egg.

While it’s great to have time on your side, it’s never too late to start saving and take advantage of compounding interest. When it comes to making your money work hard, there's no substitute for a well-designed plan. Consider talking with a professional financial planner about your needs and financial goals, which should provide the foundation for your plans. Experts agree that part of your financial plan should include putting roughly three to six months’ living expenses aside as an emergency fund. Consistent saving and compound interest can help that emergency fund grow and give you the peace of mind that comes from knowing you’re prepared for life’s unexpected expenses.

Ally Bank offers a variety of accounts to help you save, all at some of the most competitive rates in the country. Take a look at our No Penalty CD, Money Market Account, Online Savings Account and more at or call live, 24/7 customer care at 877-247-ALLY (2559) today.

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