How to Get Compound Interest?

How to Get Compound Interest

Do you want to get compound interest working for you? If you’ve ever wondered how to get your money working for you, this blog post is for you. We’ll explain how compound interest works, and show you some methods that you can use to get the most out of this powerful financial tool.

From saving money on your mortgage to investing money for the long haul, we’ll show you how technology can help make your life easier and your finances work smarter. Ready to get started? Let’s take a look!

What is Compound Interest?

What is Compound Interest

Compound interest is a mathematical operation that calculates the growth of an amount of money over time. The compound interest calculation sums the original investment, called the principal, with all subsequent periodic payments (interest) made on that sum. The result is the total amount of interest that has been earned on the original investment.

The basic principle behind compound interest is that over time, a greater and greater percentage of each original investment will be earned back as additional payments. This process can continue until either the principal or the sum total of all interests paid exceeds the initial investment.

How to Calculate Compound Interest?

How to Calculate Compound Interest

To calculate compound interest, you will need to divide the original investment by the number of years that have passed.

For example, suppose you saved $10,000 over 10 years and want to calculate the compound interest.

You would divide $10,000 by 10 to get a result of 1000:

= $100

$100 / 1 = 10 or 0.1

How To Get Compound Interest?

To get compound interest, you need to understand how it works. Compound Interest is the process by which an investment earns additional interest on its accumulated capital over time.

Essentially, every time an investment is made, there’s a chance to earn money more than now in the future because of reinvested earnings from previous investments.

Here’s how it works,

  • You deposit $100 into a bank account with 0% interest.
  • For six months, your bank pays you 1%.
  • If you leave your money in the bank for another 6 months without making any additional investments, your bank will have paid you 3%.
  • If you instead invest 100K in a CD with 5% interest, the interest that banks pay on CDs compounds every month (i.e., after 6 months it would be 6.25%, and so on).

This is how compound interest works in practice: if an investment earns 0% or less per year, no additional money is earned because there’s nothing to reinvest. Once an investment starts to earn a small amount of income each year however (say 1%), this extra money begins to grow over time as it’s reinvested back into the investment.

This process continues until eventually an investment will be earning a high rate of interest (say 5%), at which point any extra money that accumulates is pure profit for the investor!

Why Compound Interest Is Important?

Why Compound Interest is Important

Compound interest is important because it allows you to make money on your investments over time. Imagine if you didn’t have compound interest, and deposited $1,000 into a bank account that paid 0.10% interest per annum. After 10 years, the total amount in your account would be only $990! However, if you had invested that same $1,000 in a compounded annual interest savings account where the rate was 2%, then your balance after 10 years would be approximately($19,972)!

The Bottom Line

By now you must have figured that how compound interest works. To get the full picture, just remember that the more money you save and add in your account, the bigger amount will grow in due time. This is how compounding interest can turn a small sum into a huge fortune over time!

Nowadays, most people don’t know about this secret formula because it is not taught at school where students are usually obsessed with getting higher grades rather than earning their own money. Don’t worry though – if you start saving from today on, it will only take two years to see the fruits of your labor as long as you keep putting some Money in your account everyday.

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