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How Will Monthly Compound Interest Affect Your Investments?
Compound interest – you’ve heard of it, but what is it?
As you know, banks and other financial institutions regularly publish their interest rates. You might be tempted to multiply the interest rate by the amount you plan to invest. The result is called simple interest. Simple interest is the amount of interest paid based on the principal balance alone.
Compound interest, on the other hand, results in even the interest earning interest.
Using this monthly compound interest calculator, you can accurately determine the result of compound interest on your investments. Monthly compound interest is the most common method of compounding used by financial institutions.
Interest Matters – An Example
Earning interest – including compound interest – has profound effects on your investments.
For example, if you are depositing $10 monthly and it is compounded at 5% annually, your money will grow to $4,127.46 at the end of 20 years. Whereas, if you just keep this money in your safety deposit box, you will only have $2,400 at the end of 20 years. See the difference? Your money almost doubled its value.
How Compound Interest Affects Your Investments
Monthly compound interest does not make a noticeable difference when your money is in short-term investments. It would take years before you would see results.
However, compound interest will make your investments grow faster than simple interest. Find investments that offer compound interest.
Compounding on a more frequent basis results in more earnings than compounding on a less frequent basis. And, the longer you keep your money in a compounding investment, the better the result.
Compound Interest Key Concepts
- Compound interest works well with investments but can be very dangerous if applied to your loan.
- Compounding is more effective if your investment is compounded monthly or quarterly instead of annually. If you are taking a loan, annual compounding is better. Remember, compounding can work for you or against you depending on the situation.
- Compound interest grows faster than you think. The more money you add to your investment accounts and the longer you invest, the more interest you will earn.
Choose The Right Investment
There are many pros and cons to consider when choosing an investment. Some investment products return higher yields but carry greater risk.
If you cannot stomach risk right now, save a few dollars every month and put it into a savings account that compounds monthly. Even small deposits can make a big difference in the future.
To choose the right investment, evaluate your goals, check your capacity to tolerate risk, and carefully study the market to find which investment products work best for you.
Regularly saving money and investing wisely are essential components to building wealth – use the Monthly Compound Interest Calculator and see what you can achieve!
Compound Interest Calculator Terms & Definitions
- Current Savings Balance – The money you already have saved that will be applied toward your savings goal.
- Monthly Deposit – How much money you’re planning on depositing every month over the number of years to compound.
- Annual Interest Rate (ROI) – The annual percentage interest rate your money earns if deposited.
- Number of Years to Compound – The number of years your money will compound on a monthly basis.
- Future Value – The value of your account, including interest earned, after the number of years to compound.
- Compound Interest Earned – The amount of compound interest earned after the number of years to compound.
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