Which type of interest can help an investment grow faster?

Compound interest is the type of interest that can significantly enhance the growth of an investment over time. This is because compound interest not only applies to the principal amount of the investment but also to any interest that has previously accrued. This process of earning interest on interest allows investments to grow at an accelerating rate, especially over longer periods.

For example, if you invest a sum of money at a rate of compound interest, the interest earned in the first year adds to the principal for the calculation of interest in the subsequent year. As this cycle continues, the total amount grows faster compared to earning simple interest, which is calculated only on the initial principal amount throughout the investment period.

This compounding effect is often illustrated by the "rule of 72," which estimates the number of years required to double the investment at a given annual compound interest rate. This demonstrates why compound interest is favored in long-term investment strategies, allowing investors to maximize their potential returns.