![]() If you're earning compound interest on an investment, it's working for you because your money is growing. Most Canadian credit card issuers do not compound interest on credit cards. credit card issuers may calculate your interest charges by compounding daily. ![]() If you're paying compound interest on a loan, it's working against you because you're accruing more debt. The longer your money is invested, the greater the return, as you will have more time for your accumulated interest to earn even more interest.Ĭompound interest can work for you or against you, depending on if you are saving or borrowing. 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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