• Menu
  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Sweidan and Co

Sweidan and Co

Header Right

Office - 031 350 4580

  • Home
  • What We Offer
    • Corporate Services
      • Health Care
      • Employee Benefits
    • Estate Planning
    • Insurance
      • Risk Cover
      • Short Term Insurance
    • Investments
      • Local Investments
      • Offshore Investments
      • Conservo Product
  • Medical Aid
  • Blog
  • Contact Us
  • Home
  • What We Offer
    • Corporate Services
      • Health Care
      • Employee Benefits
    • Estate Planning
    • Insurance
      • Risk Cover
      • Short Term Insurance
    • Investments
      • Local Investments
      • Offshore Investments
      • Conservo Product
  • Medical Aid
  • Blog
  • Contact Us

What is Compound Interest?

What is Compound Interest?What is Compound interest? Understanding Compound Interest is key to becoming wealthy and building your independent fortune.

It can help you earn a higher return on your savings and investments, but it can also make things worse when you have interest compounding on the money you’ve borrowed. In other words, it can work for you or against you. Be sure to get on the right side of Compound Interest.

What Is Compound Interest?

Compounding is the process of growing. If you’re familiar with the “snowball effect,” you already know how something can build upon itself.

Compound interest is interest earned on money that was previously earned as interest. This cycle leads to increasing interest and account balances at an increasing rate, sometimes known as exponential growth.

Start with the concept of simple interest: you deposit money, and the bank pays you interest on your deposit. For example, you might deposit R1000.00 for one year at 5 percent, and you’d earn R50.00 in interest over the year.

What is Compound Interest?What happens next year? That’s where compounding comes in. You’ll start earning interest on your initial deposit, and you’ll earn interest on the interest you earned. In simpler terms:

  • You’ll earn 5 percent on your original deposit of R1000.00 again.
  • You’ll earn 5 percent on the new R50.00 of interest earnings the bank paid to your account.

That means you’ll earn over R50.00 next year because your account balance is now R1005.00, even though you didn’t make any deposits, so your earnings will accelerate.

At many banks, interest compounds daily and gets added to your account monthly, so the process moves even faster.

If you’re borrowing money, compounding works against you. You pay interest on the money you borrowed, and your loan balance can increase over time, even if you don’t borrow any more money.

Using the Power Compound Interest For Good

One of the ways that compound interest can be most useful is in saving for retirement. Time things right and you can save a lot of money without having to invest anywhere near as much money as you think.

In fact, if you start early enough and choose the right savings and investment accounts you may have to contribute very little at all after the first few years your accounts are active.

So if you think that you are too young to start saving for retirement and you are over, say 21, you are wrong. You could get started tomorrow and even very small contributions will have grown impressively by the time you are ready to retire. We suggest consulting with an independent financial advisor to find the best places to invest your money, and we suggest doing so as soon as you can.

What is Compound Interest and How to Avoid the Dark Side

As we mentioned, compound interest has a dark side. It’s not just formal loans that accrue compound interest, it’s more commonly used in credit cards loans too. That dinner that you put on your credit card last month? The one that was a bit of a splurge, but you did it because you just got that credit line increase? If you don’t pay it off right away it could end up costing you a lot more than you bargained for.

In the end, as we said at the beginning, compound interest is a ‘trick’ that can work for or against you. Make a conscious effort to stay on its good side, and you’ll find that maybe it is magic after all.

Filed Under: Finance, Investing

Previous Post: «Your Time is Valuable Your Time is Valuable. How Not to Waste It
Next Post: 5 Rules for Self – Employed Retirement 5 Rules for Self - Employed Retirement»

Primary Sidebar

Recent Posts

  • InflationWhat NOT To Cut From Your New High Inflation Budget
  • Investing Against Recession in 2022Investing Against Recession in 2022
  • Last WillWhy You Need to Make a Will Now
  • Where are Billionaires Investing Their MoneyWhere are Billionaires Investing Their Money in 2022? 
  • Investment Advice from Warren BuffetInvestment Advice from Warren Buffet for 2022

Categories

  • Budgeting (24)
  • Estate Planning (2)
  • Exercise (4)
  • Finance (56)
  • Financial Planning (8)
  • Gap Cover (1)
  • Health (12)
  • Hospital Plans (2)
  • In the news (4)
  • Insurance (12)
  • Investing (52)
  • Medical Aid (12)
  • Offshore Investing (9)
  • Property (2)
  • Retirement (15)
  • Tax (5)
  • Wellness programmes (2)
  • Work From Home (1)

Copyright © 2022| PAIA Manual | Privacy Policy| Robo Invest | Sweidan and Co is an authorised Financial Services provider FSP 45893