What is Compound Interest?
Compound interest is interest you earn on interest and the principal amount. For example, if you have 100 apples and it earns 5% interest each year, you’ll have 105 apples at the end of the first year. At the end of the second year, you will have 110.25 apples.
Doesn’t seem like a lot at first, however over time this amount will grow exponentially. The secret is to start early and to let the compounding effect work so that you can reap the rewards later. You can also help the process by adding to it regularly, such as in monthly instalments.
Usually when people borrow money then the bank charges the interest rate, such as when you borrow money to buy a home or car. Over a period, the interest rate can work out a lot.
How much can I make from Compound Interest?
To work out how much you could make from your savings, google compound interest calculators, there are many different ones online.
How can I start earning Compound Interest?
Most banks offer a savings account that provides interest on your money. Start with approaching your current bank and ask them what savings accounts they have on offer, this can either be done online or visiting your local bank.
Some of the things you should look out for, to get the most out of your savings, is the compounding frequency this can either be yearly, monthly or daily, and you would want to look at the interest rates.
Conclusion
Even Albert Einstein wrote a quote about compound interest:
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
