PriyanPhoenix
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Virtually all bank savings accounts operate on the principle of compound interest. It simply means that each time interest is calculated, it is based on the total amount of money, including all interest paid, in the account.
Some accounts may pay interest every month or every six-months so this will increase the effectiveness of the compound interest. However, you will tend to find that accounts which pay interest annually provide the best interest rates. |
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taketwo
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It's interest on top a interest |
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6StringsDown
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go to the bank and ask to buy £1000 worth of compound interest... |
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danielk
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This article on SmartMoney.com explains the power of compounding well, and has interactive examples to help you understand.
http://www.smartmoney.com/university/investing101/whyitworks/index.cfm?story=compounding |
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manabsac
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Compound interest is the one computed for the sum of the principal amount (the money you invested) plus the interest acrued over the previous time period (most likely previous month) for calculating the interest.
Here is the algorithm to calculate the increasing capital
Let P be the principal amount you invest
Update (increase) the principal amount by adding the interest amount
Let the interval be month (for calculating the interest)
Let im be the montly interest (=annual interest rate / 12) in fraction (ie if annual interest rate is 12% then monthly interest rate is 12/12 = 1% = 0.01)
Calculate the interest for the first month
ia = P * im (im in fraction)
Update P
P = P + ia
Go back and Calculate the interest for the next month
or exit and be happy with the last value of P |
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ulchka
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Compound Interest is basically Interest money earning interest.
Say you own a stock that pays you 100$ a month in dividends. That money you also invest so its earning you money each month. Than the money that money earns each month is put into buying more and earning more interest. It will grow exponentially.
Go here: http://www.nabloid.com/finance/retirement/ |
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muncie birder
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One way to invest in compound interest is to purchase stripped bonds. They do not pay interest, but instead sell at a discount based on current interest rates and maturity date.
For example: The current quote on $10,000 U S strip due May 2020 is 49.226 giving a compound yield to maturity of 5.208%.
What that means is that you would pay $4,922.60 for a bond that when it matured would pay $10,000 giving an interest rate of 5.208%.
These bonds are popular for use in IRA accounts because rate is fixed. They however have a very big disadvantage for taxable accounts because the government makes you pay taxes on the imputed interest that they have accumulated. But since Ross IRA accounts are tax free, no problemo. |
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nickthesurfer
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Compound interest is a method of calculating interest charges/rates, rather than an actual investment. Pop into your bank and have a chat! |
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HarryBore
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Tony talks about compound interest as the way the riches investors make there money.
The basic premise is that you invest some money in a high interest savings account or bonds and assuming has a return of 10% you wil lhave made 10% gain inthe year. Keep it there and next year it will add 10% onto whatever is in your account, and so on and so on. In a few years time you will have a lot more than you started.
He also advocates that you put in a small amount every so often to increase the amount saved. This accelerates the growth of your investement. Little and often.
All banks will offer and high interest account and its best to get one for the long term. Invest what you can afford to put in and let it stay there and grow.
Happy millionaire dreams |
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adwoa
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Compound interest is about calculating interest on interest. It depends on which investment you go for it could be compounded daily weekly etc.If you put in $10,000 and a rate of 1% per monthly compound interest is calculated you get $100 on the first month the next month you get 1% of $10100.Look for bank in your country who do compound interest
Adwoa |
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reallifeanswers
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Compound Interest is earning interest on the total amount of money. Many here have explained it well. The real secret of the rich is to earn 10% compounded MONTHLY. |
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MARK H
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All banks pay compound interest as far as I know. It is basically a savings account. Check to see when the interest is calculated, and added. For example, if you place 1k into a savings account, that pays interest monthly, and you leave the balance in there as well as the interest, it will be compounded, ie month 1 assuming interest paid at 3% balance end on month 1 would be 1030. you will then be earning interest on 1030, so next month would be 1060.90, and so on. Some savings account calculate daily interest, so just look for a bank with the highest annual compounded rate of interest rather than the headline deals. |
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Stephen H
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WHAT!? Compound interest is a type of interest charged on money you have borrowed! The loan gets charged interest, you are then charged further interest on the amount of the loan plus any interest that has already been added to the loan |
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