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"Compounding" is like magic for your money. When you put money in a bank account, the bank gives you a little bit of extra money called "interest" that helps your money grow. With compounding, the interest you earn gets added to your original money, and then you earn even more interest on the bigger amount. It's like a snowball rolling down a hill, getting bigger and bigger.
For example, let's say you put $100 in a savings account that earns 5% interest. After one year, you would earn $5 in interest, so you would have $105. But if you leave that $105 in the account, the next year you would earn interest not only on the original $100, but also on the $5 you earned in interest. That means you would earn $5.25 in interest, and your balance would be $110.25.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
Oh, compounding, it's quite astounding
A little interest, oh so confounding
It adds up fast, it's quite a blast
Your money grows and lasts and lasts!
A penny here, a penny there
Interest adds up, it's only fair
Your money grows without a sound
Compounding magic all around!