Topics of Interest
The Retirement Gamble
Click here to launch PBS’s recent feature entitled The Retirement Gamble and watch the Wall Street executives squirm as they attempt to defend their usury fees and expenses.
Further corroboration that investors are better off ignoring the hype of “active investing” and investing in Index or Index-like, No-Load investments. Curious about the how actively managed investments have performed compared with passive, over the last 10 years?
Click here for the report.
Money CAN Grow On Trees–The Power of Compounding
The rich seem to keep getting richer without having to work harder than anyone else. But just how do they do that? One of the secrets the wealthy use to create more wealth is to invest their money wisely. In fact, they even earn more money from the interest on the money they’ve invested. Surprise! Money can grow on trees after all. You can do the same with your money by depositing it into accounts that pay compound interest.
Let’s begin by looking at how basic interest works:
- Basic interest is paid on the initial amount deposited into your account.
- Even when interest is applied and the amount in your account grows, the interest is still only applied on the principal – the amount without the interest.
- You won’t earn a lot this way because you’re only earning interest on the principal amount.
It is much smarter to put your money in an account that pays compound interest. This is where you can really watch your money grow, and make more money from your initial deposit.
Here is how compound interest works:
- Compound interest is basically interest that is collected on the original amount you deposited plus the interest that has already been applied to that amount.
- Whenever interest is applied, the amount of interest is added to the principal for the next time interest is applied.
- Unlike basic interest that is applied only to the principal, compound interest is paid on the entire amount in the account, not just the principal.
- Your money can earn more in a compound interest account than in other types of accounts because you’re earning interest on a greater amount of money each time the interest is compounded.
DOUBLING YOUR MONEY
You can find out how long it will take your money to double in a compound interest account by applying a very simple calculation:
Take the interest rate you’re earning for your money and divide it into 72.
For example, if you’re earning four percent interest, you would divide four into 72 and learn that it will take 18 years to double your money. If your money is in an account that pays six percent compound interest, it would take 12 years to double your money.
These examples illustrate how your money will be compounded on an annual basis. Some financial institutions will compound your interest on a more frequent basis, such as quarterly or monthly. Some even compound it daily.
Investing your money in an account that will earn compound interest is a wealth-generating secret you can’t afford to neglect. There is no easier way to increase your wealth than just investing your money and watching it grow.
2 Responses to Compound Interest
October 18, 2011 at 10:55 am
Can these compounding accounts be found at any bank? Do they have a special name so we know what to look for?
October 20, 2011 at 11:11 pm
Yes indeed, banks will have each of the compound rates available and posted:
at least, and often times more time periods than that as well. If it is not posted, ask your bank for this information.