Compound interest is paid on your principle plus on the interest you have already earned.
A quick example using my account ( to show you what compounding interest can create)
I've started +- 5 months ago with 10.000 euro.
I decided to keep my funds in my account and not withdraw the profits each months (so compounded interest).
Thanks to this I now have around 80% profits, but if I would have taken my profits out of the account every month I would have had around 6000 (or 60%) in profits.
Compound interest is great when it works in your favor in investments, but it can also be your biggest enemy when it works against you in loans and other debts. The key is to figure out how you can let it work in your favor. If you stay on top of your loan payments and always keep an eye on your investments, then compound interest can be your best friend when it comes to wealth. Having control of your personal finances makes it easier to navigate the road as you look towards the future.
A great quote:
“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
A consideration is how often the interest is compounded; an investment with interest compounded monthly will grow faster than an investment with interest compounded annually.
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