Compound interest

Mathematics is an integral part of programming. If you cannot solve simple problems in this area, you will have a much harder time than you need to.

Fortunately, learning how to do it is not too difficult. In this article, you will learn how to calculate simple and compound interest using Python, C ++, and JavaScript.

How do you calculate simple interest?

Simple interest is a method of calculating the amount of interest charged on a principal amount at a given rate and for a given period of time. You can calculate simple interest using the following formula:

Simple Interest = (P x R x T)/100 
Where, 
P = Principle Amount
R = Rate
T = Time

The problem statement

we give you principal amount, interest rate, and time. You need to calculate and print the simple interest for the given values. Example: Either principle = 1000, rate = 7 and timePeriod = 2. Simple interest = (principle * rate * timePeriod) / 100 = (1000 * 7 * 2) / 100 = 140. Thus, the output is 140.

The C ++ program to calculate simple interest

Here is the C ++ program to calculate simple interest:

// C++ program to calculate simple interest
// for given principle amount, time, and rate of interest.
#include 
using namespace std;
// Function to calculate simple interest
float calculateSimpleInterest(float principle, float rate, float timePeriod)
{
return (principle * rate * timePeriod) / 100;
}
int main()
{
float principle1 = 1000;
float rate1 = 7;
float timePeriod1 = 2;
cout << "Test case: 1" << endl;
cout << "Principle amount: " << principle1 << endl;
cout << "Rate of interest: " << rate1 << endl;
cout << "Time period: " << timePeriod1 << endl;
cout << "Simple Interest: " << calculateSimpleInterest(principle1, rate1, timePeriod1) << endl;
float principle2 = 5000;
float rate2 = 5;
float timePeriod2 = 1;
cout << "Test case: 2" << endl;
cout << "Principle amount: " << principle2 << endl;
cout << "Rate of interest: " << rate2 << endl;
cout << "Time period: " << timePeriod2 << endl;
cout << "Simple Interest: " << calculateSimpleInterest(principle2, rate2, timePeriod2) << endl;
float principle3 = 5800;
float rate3 = 4;
float timePeriod3 = 6;
cout << "Test case: 3" << endl;
cout << "Principle amount: " << principle3 << endl;
cout << "Rate of interest: " << rate3 << endl;
cout << "Time period: " << timePeriod3 << endl;
cout << "Simple Interest: " << calculateSimpleInterest(principle3, rate3, timePeriod3) << endl;
return 0;
}

Go out:

Test case: 1
Principle amount: 1000
Rate of interest: 7
Time period: 2
Simple Interest: 140
Test case: 2
Principle amount: 5000
Rate of interest: 5
Time period: 1
Simple Interest: 250
Test case: 3
Principle amount: 5800
Rate of interest: 4
Time period: 6
Simple Interest: 1392

Related: How to Find All the Factors of a Natural Number in C ++, Python, and JavaScript

The Python program to calculate simple interest

Below is the Python program to calculate simple interest:

# Python program to calculate simple interest
# for given principle amount, time, and rate of interest.
# Function to calculate simple interest
def calculateSimpleInterest(principle, rate, timePeriod):
return (principle * rate * timePeriod) / 100
principle1 = 1000
rate1 = 7
timePeriod1 = 2
print("Test case: 1")
print("Principle amount:", principle1)
print("Rate of interest:", rate1)
print("Time period:", timePeriod1)
print("Simple Interest:", calculateSimpleInterest(principle1, rate1, timePeriod1))
principle2 = 5000
rate2 = 5
timePeriod2 = 1
print("Test case: 2")
print("Principle amount:", principle2)
print("Rate of interest:", rate2)
print("Time period:", timePeriod2)
print("Simple Interest:", calculateSimpleInterest(principle2, rate2, timePeriod2))
principle3 = 5800
rate3 = 4
timePeriod3 = 6
print("Test case: 3")
print("Principle amount:", principle3)
print("Rate of interest:", rate3)
print("Time period:", timePeriod3)
print("Simple Interest:", calculateSimpleInterest(principle3, rate3, timePeriod3))

Go out:

Test case: 1
Principle amount: 1000
Rate of interest: 7
Time period: 2
Simple Interest: 140.0
Test case: 2
Principle amount: 5000
Rate of interest: 5
Time period: 1
Simple Interest: 250.0
Test case: 3
Principle amount: 5800
Rate of interest: 4
Time period: 6
Simple Interest: 1392.0

Related: How To Complete The FizzBuzz Challenge In Different Programming Languages

The JavaScript program to calculate simple interest

Below is the JavaScript program to calculate simple interest:

// JavaScript program to calculate simple interest
// for given principle amount, time, and rate of interest.
// Function to calculate simple interest
function calculateSimpleInterest(principle, rate, timePeriod) {
return (principle * rate * timePeriod) / 100;
}
var principle1 = 1000;
var rate1 = 7;
var timePeriod1 = 2;
document.write("Test case: 1" + "
");
document.write("Principle amount: " + principle1 + "
");
document.write("Rate of interest: " + rate1 + "
");
document.write("Time period: " + timePeriod1 + "
");
document.write("Simple Interest: " + calculateSimpleInterest(principle1, rate1, timePeriod1) + "
");
var principle2 = 5000;
var rate2 = 5;
var timePeriod2 = 1;
document.write("Test case: 2" + "
");
document.write("Principle amount: " + principle2 + "
");
document.write("Rate of interest: " + rate2 + "
");
document.write("Time period: " + timePeriod2 + "
");
document.write("Simple Interest: " + calculateSimpleInterest(principle2, rate2, timePeriod2) + "
");
var principle3 = 5800;
var rate3 = 4;
var timePeriod3 = 6;
document.write("Test case: 3" + "
");
document.write("Principle amount: " + principle3 + "
");
document.write("Rate of interest: " + rate3 + "
");
document.write("Time period: " + timePeriod3 + "
");
document.write("Simple Interest: " + calculateSimpleInterest(principle3, rate3, timePeriod3) + "
");

Go out:

Test case: 1
Principle amount: 1000
Rate of interest: 7
Time period: 2
Simple Interest: 140
Test case: 2
Principle amount: 5000
Rate of interest: 5
Time period: 1
Simple Interest: 250
Test case: 3
Principle amount: 5800
Rate of interest: 4
Time period: 6
Simple Interest: 1392

How to calculate compound interest

Compound interest is the addition of interest to the principal amount. In other words, it’s interest over interest. You can calculate compound interest using the following formula:

 Amount= P(1 + R/100)T
Compound Interest = Amount – P
Where,
P = Principle Amount
R = Rate
T = Time

The problem statement

we give you principal amount, interest rate, and time. You need to calculate and print the compound interest for the given values. Example: Either principle = 1000, rate = 7 and timePeriod = 2. Amount = P (1 + R / 100) T = 1144.9 Compound interest = Amount – Principal amount = 1144.9 – 1000 = 144.9 Thus, the output is 144.9.

The C ++ program to calculate compound interest

Below is the C ++ program to calculate compound interest:

// C++ program to calculate compound interest
// for given principle amount, time, and rate of interest.
#include 
using namespace std;
// Function to calculate compound interest
float calculateCompoundInterest(float principle, float rate, float timePeriod)
{
double amount = principle * (pow((1 + rate / 100), timePeriod));
return amount - principle;
}
int main()
{
float principle1 = 1000;
float rate1 = 7;
float timePeriod1 = 2;
cout << "Test case: 1" << endl;
cout << "Principle amount: " << principle1 << endl;
cout << "Rate of interest: " << rate1 << endl;
cout << "Time period: " << timePeriod1 << endl;
cout << "Compound Interest: " << calculateCompoundInterest(principle1, rate1, timePeriod1) << endl;
float principle2 = 5000;
float rate2 = 5;
float timePeriod2 = 1;
cout << "Test case: 2" << endl;
cout << "Principle amount: " << principle2 << endl;
cout << "Rate of interest: " << rate2 << endl;
cout << "Time period: " << timePeriod2 << endl;
cout << "Compound Interest: " << calculateCompoundInterest(principle2, rate2, timePeriod2) << endl;
float principle3 = 5800;
float rate3 = 4;
float timePeriod3 = 6;
cout << "Test case: 3" << endl;
cout << "Principle amount: " << principle3 << endl;
cout << "Rate of interest: " << rate3 << endl;
cout << "Time period: " << timePeriod3 << endl;
cout << "Compound Interest: " << calculateCompoundInterest(principle3, rate3, timePeriod3) << endl;
return 0;
}

Go out:

Test case: 1
Principle amount: 1000
Rate of interest: 7
Time period: 2
Compound Interest: 144.9
Test case: 2
Principle amount: 5000
Rate of interest: 5
Time period: 1
Compound Interest: 250
Test case: 3
Principle amount: 5800
Rate of interest: 4
Time period: 6
Compound Interest: 1538.85

Related: How to Invert an Array in C ++, Python, and JavaScript

The Python program to calculate compound interest

Below is the Python program to calculate compound interest:

# Python program to calculate compound interest
# for given principle amount, time, and rate of interest.
# Function to calculate compound interest
def calculateCompoundInterest(principle, rate, timePeriod):
amount = principle * (pow((1 + rate / 100), timePeriod))
return amount - principle
principle1 = 1000
rate1 = 7
timePeriod1 = 2
print("Test case: 1")
print("Principle amount:", principle1)
print("Rate of interest:", rate1)
print("Time period:", timePeriod1)
print("Compound Interest:", calculateCompoundInterest(principle1, rate1, timePeriod1))
principle2 = 5000
rate2 = 5
timePeriod2 = 1
print("Test case: 2")
print("Principle amount:", principle2)
print("Rate of interest:", rate2)
print("Time period:", timePeriod2)
print("Compound Interest:", calculateCompoundInterest(principle2, rate2, timePeriod2))
principle3 = 5800
rate3 = 4
timePeriod3 = 6
print("Test case: 3")
print("Principle amount:", principle3)
print("Rate of interest:", rate3)
print("Time period:", timePeriod3)
print("Compound Interest:", calculateCompoundInterest(principle3, rate3, timePeriod3))

Go out:

Test case: 1
Principle amount: 1000
Rate of interest: 7
Time period: 2
Compound Interest: 144.9000000000001
Test case: 2
Principle amount: 5000
Rate of interest: 5
Time period: 1
Compound Interest: 250.0
Test case: 3
Principle amount: 5800
Rate of interest: 4
Time period: 6
Compound Interest: 1538.8503072768026

Related: How To Find The Sum Of All The Elements In An Array

The JavaScript program to calculate compound interest

Below is the JavaScript program to calculate compound interest:

// JavaScript program to calculate compound interest
// for given principle amount, time, and rate of interest.
// Function to calculate compound interest
function calculateCompoundInterest(principle, rate, timePeriod) {
var amount = principle * (Math.pow((1 + rate / 100), timePeriod));
return amount - principle;
}
var principle1 = 1000;
var rate1 = 7;
var timePeriod1 = 2;
document.write("Test case: 1" + "
");
document.write("Principle amount: " + principle1 + "
");
document.write("Rate of interest: " + rate1 + "
");
document.write("Time period: " + timePeriod1 + "
");
document.write("Compound Interest: " + calculateCompoundInterest(principle1, rate1, timePeriod1) + "
");
var principle2 = 5000;
var rate2 = 5;
var timePeriod2 = 1;
document.write("Test case: 2" + "
");
document.write("Principle amount: " + principle2 + "
");
document.write("Rate of interest: " + rate2 + "
");
document.write("Time period: " + timePeriod2 + "
");
document.write("Compound Interest: " + calculateCompoundInterest(principle2, rate2, timePeriod2) + "
");
var principle3 = 5800;
var rate3 = 4;
var timePeriod3 = 6;
document.write("Test case: 3" + "
");
document.write("Principle amount: " + principle3 + "
");
document.write("Rate of interest: " + rate3 + "
");
document.write("Time period: " + timePeriod3 + "
");
document.write("Compound Interest: " + calculateCompoundInterest(principle3, rate3, timePeriod3) + "
");

Go out:

Test case: 1
Principle amount: 1000
Rate of interest: 7
Time period: 2
Compound Interest: 144.9000000000001
Test case: 2
Principle amount: 5000
Rate of interest: 5
Time period: 1
Compound Interest: 250
Test case: 3
Principle amount: 5800
Rate of interest: 4
Time period: 6
Compound Interest: 1538.8503072768008

Learn to code for free: start with simple and compound interest

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About the Author

MoneyWeek will be 21 in early November. It has been a busy twenty years. We have passed through the dot-com bubble, two commodity supercycles, the real estate bubble, a financial crisis once in a century and a pandemic once in a century.

In short, we circled the block more than a traffic cop in London. But one thing we haven’t experienced yet: a nasty surge in inflation. I wonder if we will do it now.

Inflation not so transitory

John explains in detail why we’re worried in this week’s magazine, but the bottom line (which is mounting rapidly) is that all the signs are there. Massive money printing, which this time goes straight into the system rather than plugging holes in bank balance sheets as in 2008-2009. Supply bottlenecks, skills shortages and rising commodity prices – a combination that portends a wage-price spiral. And, last but not least, central banks and a majority of economists insist that inflation at multi-year highs is transient. It would be the same central banks and the majority of economists who did not see the financial crisis coming.

It may not be long before we start to notice that the prices of the items we buy on a regular basis are increasing. We all have our own daily inflation gauges. Mine is the Peppermint Aero. I remember a bar cost me 22 pence in 1988. Now it sells for 60 pence. The Bank of England’s inflation calculator, by far the most interesting thing on the website, suggests this is true: £ 22 in 1988 was £ 60 in 2020. Prices have almost tripled.

The average annual rate since 1988 is 3.2%, which is not bad. But apply this for 33 years and watch what happens. Push it up to 5%, and the money depreciates much faster. At this rate, £ 100 decreases to £ 36 in 20 years. Inflation is the evil twin of compound interest.

So keep an eye out for your favorite brand of cereal, chocolate or wine. Also beware of “retraction”. Sometimes the price stays the same but the package gets smaller. I think I remember that the 1988 Aero bar was a bit longer. I couldn’t swear, but I know for sure that only a few years ago Cadbury sold six fudge eggs in one package; now there are five.

Where does it all lead (beyond fudge in packs of four)? It is becoming increasingly clear that central banks have no intention of pushing inflation out of the system. They have subtly raised the bar on what they say they need to see or anticipate about inflation before they stop printing money through quantitative easing or raise interest rates. We hear time and time again that inflation should be temporary, and they will look at it. They suggest they will tolerate above target inflation for longer than in the past. This spring, the US Federal Reserve changed its official inflation target from 2% to an average of 2% “over time.” Two weeks ago, the European Central Bank also raised its inflation target. It is now aiming for 2% inflation in the medium term, whereas previously it tried to keep inflation below but close to 2%.

Interest rates cannot rise

The direction of travel is clear. The goal is to inflate huge global debt – largely caused by central banks keeping interest rates too low for too long, of course. A sharp rise in interest rates would cripple the global system.

Bond yields remain historically low, with investors apparently assuming the disinflationary environment of the past 40 years will last indefinitely. And central banks have bought much of the bond market with printed money, which also keeps yields low. The result ? We expect years of below-inflation returns, which is great news for gold. If rates end up rising in an environment of uncontrollable inflation, that will also benefit. I will top up my gold today – as soon as I finish my 60p Aero.

In your graduate studies, when you have opted for or are looking forward to math or accounting, you must have come across the terms simple interest and compound interest. But have you ever imagined where either of the two terms would be used? Well, both formulas are very important to understand if you have a background in finance or if you have applied to an investment company or if you want to get into the CA, CS field. These are important concepts and it takes a thorough understanding to survive in the financial industry.

So here are the few essential points, tips and tricks you need to know when calculating simple or compound interest.

1- Application- The first difference between simple interest and compound interest is application. Always remember simple interest formula is always applied to a principal amount for the entire holding. On the other hand, compound interest is applied on the principal or the actual amount as well as on the interest frequently according to the months, quarters and years.

2. Anyone Can Benefit – To get a good return on investment, anyone can benefit from compound interest. The only thing you need to focus on is investing rather than saving. For example, if you want to invest in the stock market or in mutual funds, you do not need to be highly qualified or to obtain a degree from Harvard University, but you can benefit from the formula of compound interest.

3. Time is on your side – The more money flows or is compounded, the better and faster it grows. For example, if you get 7 percent interest in one year that will double in about 14 years and be worth four times in 28 years.

4. Funding is a double-edged sword – If capitalization can multiply your investments with little savings, at the same time it is a cruel situation of borrowing money where you have to pay back with compound interest. .

5. Building Wealth – It is okay if your wealth increases slowly and steadily with simple interest, but at the same time, if you look at compound interest, wealth increases at a higher rate.

6. Change in Principal Amount – Under the concept of simple interest, the principal amount does not change with increasing term and this leads to less returns in a period. On the other hand, principal and interest increase simultaneously and thus increase returns over a period.

7. Formula – Both have their formula defined while doing a calculation i.e. for simple interest the formula is = P * I * N

Compound interest is calculated with P (1 + R / N) N * T

8. Reap Profits in the Future – It is true that you have to balance your expenses wisely to get a successful result in the end. If you save a little today by either means, you may end up with higher returns in the future than your basket of investments can protect.

9. The Rich Concept Doesn’t Work – To earn a good return, you don’t have to be rich. You can even start from $ 100 or $ 1000 million, the mix works great and gives you the best for the amount invested.

To conclude-

The concept of simple interest and compound interest is very important and has significant importance in their daily routine. Simple interest does not compound, which means the other person will only get interest on the principal amount and not interest on the interest. In all businesses these terms are used, whether it is a loan company or financial institutions like banks, or financial advisers like wealth management organizations, etc. These terms have an important role in different fields.

So, if you are a beginner or want to go back in time to all the important concepts of simple interest and compound interest, Cuemath is the ultimate guide and will help you review all of these concepts effortlessly.

Use this compound interest calculator

What is compound interest?

Compound returns on investment

More NerdWallet Calculators

Complete with additional contributions

However, if you are an elderly pensioner, any gift over $ 10,000 per year, or $ 30,000 over five years, would be treated as private property and, depending on your overall assets and income, could affect your eligibility. at the pension.

You say you don’t get any pensions, which means you could give your son whatever you want without any negative impact on your finances.

I am 21 years old and I dream of becoming a homeowner. I want to start thinking about investing my money. I calculated that, with my paycheck, I could probably afford repayments of around $ 1,200 per month. I have looked at home loans but with what I earn I cannot borrow enough money to afford anything in the real estate market. I have about $ 26,000 in a high interest bank account, but I don’t know what to do from here. What can I do to give myself the best return on my money?

If you’re ready to take a long-term view – and you wouldn’t panic and sell when the stock market is having one of its normal bad days – you might consider taking out a margin loan to buy a trust fund. ‘quality actions.

You can start small and spread your money over a range of blue chip stocks. Also, you would get a tax benefit, as part of the income stream generated by dividends from these companies would be franked.

You could then regularly increase your base investment by reinvesting those dividends or making other contributions.

If you seek professional financial advice first and adopt a conservative loan-to-appraisal ratio, you should be fine.

My wife and I are ready to modernize our house. We only have $ 5,000 left on our mortgage, with the house valued at around $ 900,000 and a rental potential of $ 875 per week. I don’t know whether we should sell our existing house to buy the new house or refinance the existing house and make it an investment property. What are the capital gains implications of the latter option?

If you keep your home and rent it out, the deductible interest would be limited to that payable on the existing mortgage.

You cannot increase tax deductibility by mortgaging the original property to purchase your new home.

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Once you leave the original property, you will be liable for capital gains tax (CGT) on any increase in value from that date. However, it is possible to revert to this property in the future and claim the CGT six-year absence exemption but, if you did, the new property would be subject to CGT. Indeed, you cannot have two main residences at the same time.

Your best course of action would be to seek advice and liaise closely with your accountant.

Noel Whittaker is the author of Earn money with ease and many other books on personal finance. [email protected]

You would think that in order to accumulate a lot of money, whether in a savings account, a retirement savings plan or a brokerage account, you would have to constantly put a lot of money aside. But if you save and invest your money wisely over a long period of time, you might be pleasantly surprised at the level of wealth you achieve.

If the idea of ​​watching your money grow before your eyes sounds appealing to you, it’s worth tapping into the power of interest and compound returns.

Here, we’ll go over what compound growth entails and show you how a series of relatively small contributions to a savings or investment account can grow into a substantial sum over time.

How does compound interest work?

At its core, membership is the concept of earning interest over interest.

Imagine putting an initial deposit of $ 1,000 into a savings account that earns 2% interest. This means that after one year your balance will drop to $ 1,020 without adding any additional money.

Now here’s the cool part: if you keep that money where it is, you will continue to earn interest not only on the initial $ 1,000 you invested, but also on that $ 20. Assuming your interest rate stays the same, you will earn $ 20.40 in interest in your second year of having that money in this account, for a balance of $ 1,040.40.

After 40 years in this account, earning the same interest, your $ 1,000 will increase to $ 2,208.04, more than double your initial savings, with no investment or additional work.

Typically, you don’t just save some money and get back to it 40 years from now. In fact, most people save or invest weekly or monthly. So your savings grow with your principal – the money you invest in them – plus interest which continues to accumulate as the initial balance increases along with both principal and interest.

What are the advantages of compound interest?

The advantage of the composition? It can make your money grow. Interest means you earn money without having to do any extra work. Then the money you earned keeps earning even more – it’s made worse. Your money keeps growing whether you keep adding it or not.

The downside: if you are accused compound interest – say, on a credit card balance – your debt can go up just as easily.

How does compound interest work on the stock market?

Imagine that you are looking to invest your money for a long term goal, like retirement, and you put $ 100 per month in a brokerage or IRA account instead of a bank account. A high yield savings account may only pay 2% interest.

In contrast, investing in the stock market has historically generated an average annual return of 10%, although a return in any given year fluctuates quite a bit. To be on the safe side, we’ll use a 7% return for our calculations.

The following table shows how much money you could end up with, depending on how many years you keep saving:

The accumulation of these earnings is why compound interest is so essential to financial success. But simplicity doesn’t mean people aren’t confused about how it works or how best to operate it. Here are 5 popular myths about compound interest and the reality.

2. MYTH: Compound interest is irrelevant when interest rates are low

Made: Interest rates on savings accounts aren’t very impressive in 2021. If you’re getting more than 1% right now, you’re doing fine.

But that doesn’t mean compound interest won’t help.

Example: $ 100 in the bank

Take our original example of $ 100 in a bank account. After 10 years at 1% interest, it would be worth $ 110. It’s certainly not spectacular, but it’s still $ 10 more than you wouldn’t have otherwise. And if you deposit $ 10 every month over 10 years at 1%, you’ll end up with $ 1,436.

The higher the rate and the more you can save, the better off you will be. But compound interest helps increase your savings even when rates are low.

4.MYTH: Compound interest is swallowed up by other fees

Bank charges matter. Some accounts will charge a fee if you don’t make regular deposits. Others pay less interest if you make withdrawals during the month.

This does not mean that your interest income is doomed to disappear, however. This means that you should choose an account with a high interest rate that does not charge any fees.

Whenever you open a savings account, make sure you understand:

• What conditions you must meet to get the maximum rate. If you need to save a certain amount each month, have it transferred automatically.
• What fees are applied and how you can make sure you never pay them. Most high interest savings accounts in Australia do not charge a fee. However, many of them require that you also have an associated transaction account, and these often come with a fee. Take the time to verify before registering.

And always compare accounts regularly to make sure you’re getting the best deal. Prices and conditions change. Laziness will cost you dearly. Don’t leave it to chance. Put a reminder in your calendar to check six months after opening the account.

On the surface, an interest rate is just a number. How this number applies to debt or equity opens up a world of possibilities. The first consideration is always whether it is simple interest or compound interest. Depending on which one you are dealing with, the results for your wealth could be very different.

Simple interest and compound interest are two very different concepts. Although they both represent accumulation, the method accumulation is different. For example, you would like your credit card to use simple interest to calculate your balance instead of compound interest! Likewise, you probably don’t want to invest too much in bonds that offer a return calculated by simple interest.

Let’s get to know simple and compound interest: what makes them different and how they apply to investments, both positively and negatively.

What is simple interest?

Simple interest is the calculation of the cost of a loan or total return on an uncompounded capital balance. This means that the principal balance does not change: no interest payment composes it over the life of the loan or investment. This is the most basic form of interest and it remains static.

Simple interest tends to benefit borrowers because it is not compounded. Instead of accumulating exponential fees over the life of a loan, you pay a known amount of interest on the original amount borrowed. As the loan balance decreases each month, the interest also decreases, as it is fixed on the outstanding balance.

Simple interest formula

The simple interest formula is as simple as you can imagine: I = Prt, or:

• I = total value of interest
• P = main value
• r = interest rate
• t = period

Examples of simple interests

• A certificate of deposit (CD) will produce a return on investment based on the amount of capital invested. The return is not compounded, and the interest rate and term are both fixed. If you invest $ 10,000 in a 2% CD for one year, your return will be $ 200.
• Auto loans amortize monthly, which means you know the principal and interest payments up front. If you buy a car for $ 20,000 at 6% interest for 60 months, you will owe a total of $ 3,200 in interest. Your monthly payment will remain fixed at ~ $ 387.

What is compound interest?

Compound interest is an investor’s best friend. This type of interest returns to the capital to create a larger balance which is able to generate higher returns in each compounding period. The longer the investment and the higher the interest rate, the more potential it has to create wealth.

Compound interest benefits long-term investors. Even if the interest rate fluctuates over time, there is a longer path to creating exponential growth. It is also possible to accelerate the composition with a continuous principal investment or by reinvestments, such as dividends. Compounding puts your money at your service.

Compound interest formula

The formula for compound interest is more complex than simple interest: P (1 + r / n)NT, or:

• P = the balance of the initial capital
• r = the interest rate
• m = the number of times the interest is applied
• t = the number of elapsed time periods

Examples of compound interest

• An index fund will create compound growth over time. If you invest $ 5,000 and keep investing an additional $ 250 each month for 40 years at an average interest rate of 8%, your final compounded amount will be almost $ 1 million!
• Want to create your own example of compound interest at work? Check out our compound interest calculator to see what happens to an investment when you adjust the principal, time horizon, interest rate, and more.

Pay attention to the main

Whether simple or compound, principal has a huge effect on the power of interest rates. For simple interest rates, the principal will determine the net return on your investment or the cost of borrowing. For compound investments or debt, the higher the capital, the faster the rate of accumulation.

Investors should be aware of interest rates regardless of which side of the financial transaction they find themselves on. Consider the relationship between the amount of money in question and the interest rate that goes with it. In doing so, you will have the power to calculate things like return on investment or internal rate of return (IRR).

Know the best method to accumulate wealth

You will likely encounter both types of interest during your time as an investor. The key is to know what will benefit you the most in the context of your investment vehicle: simple interest vs. compound interest. If you’re looking for a low-risk, short-term investment, you might settle for simple interest. If you are looking for large gains over a long period of time, compound interest is where it is.

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Your access to simple or compound interest will depend on the mode of investment. Good luck finding bonds with compound interest opportunities! Likewise, beware of the cumulative power of debt. Take the time to understand the nature of the interest behind the number and how it affects your principal. Then do everything you can to maximize (or minimize) the effects of interest on your investment.

Over the past few years, cryptocurrencies like Bitcoin and Ethereum have exploded in popularity. This is due to the extremely lucrative earnings that have been made by those who have bought (or mined) and owned over many years. But while you hang on to crypto in the hopes of making big gains, you tie up money that could be used to earn interest. Or at least it was before. Now, thanks to the BlockFi interest account, you can earn compound interest on your cryptocurrencies just like you would by depositing money in a traditional bank.

Essentially, compound interest is the ability to reinvest the interest you made on your deposit to earn more interest. Think of it as creating money – your money is reinvested to make more money, which you can then reinvest anyway. BlockFi does exactly that. Offering up to 8.6% APY on your deposits, the company also makes it easy for you to buy and sell cryptocurrencies.

Joining BlockFi is easy – opening an account only takes a few minutes. By opening a BlockFi Interest Account (BIA), you can practically start making money immediately after the first transaction. Whether you go for Bitcoin, Ethereum, or Litecoin, BlockFi has you covered. Investment is possible by bank / bank transfer, crypto and stablecoin. You earn interest immediately after investing in Bitcoin.

Compound investing is also a great way to diversify your portfolio, as the results of various crypto investments can vary widely. You can earn additional income by joining BlockFi’s Refer-A-Friend program. If a friend signs up using BlockFi’s referral code and invests more than $ 100 through BlockFi, you and the friend receive $ 10 in Bitcoin.

Sometimes investors need money fast, which is why they often sell their cryptocurrencies. But with BlockFi, you don’t have to worry about sacrificing your cryptocurrencies for liquidity. BlockFi’s loan program offers loans as low as 4.5 percent. You can borrow up to 50% of the value of your deposited crypto assets. Best of all, BlockFi loans aren’t hampered by cumbersome prepayment charges or penalties, meaning you can pay off the loan as soon as you want.

Additionally, BlockFi is accessible via a mobile app (Android and iOS are supported). Security measures like two-factor authentication keep you safe while trading crypto. In addition, some of the biggest crypto investors, such as Bain Capital and Tiger Global, are backing BlockFi. Investing in cryptocurrency can always be risky, but portfolio diversification makes even the potential crypto flop a little easier to take. BlockFi offers exactly that through compound interest, making your investments profitable in the short term and more profitable in the long term.

Start with BlockFi, here.

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