![]() ![]() ![]() Another key factor to compounding is time. While compounding is a powerful tool for investors and savers, compound interest won’t magically accelerate your return. Since you earn interest on past earned interest with compounding, your investment or savings return will be higher than with a simple interest calculation. In other words, compound interest is "interest on interest." The other way that interest can be calculated is called simple interest, in which interest accrues only on the initial principal. Compound interest is the interest you earn on both your original investment and the interest that has accumulated over time.
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