Compound Interesting
Compound interest is the concept of interest on interest. Compound interest will make the deposit or loans grow faster than the rate of simple interest. Simple interest is only applied on the principle while compound interest accrues depending on frequency of compounding. If you have a principle amount of $100 compounded at 10% annually will be lower in comparison to compounded at 5% semi-annually over time period.
(Where P = Principal, i = nominal annual interest rate in percentage terms, and n = number of compounding periods.)
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Compound interest can boost investments returns over the long term. While Albert Einstein called compound interest the eighth wonder of the world or man's greatest invention. However, compounding can work against the consumer. A credit-card balance can have a monthly compounding interest rate which would result the consumer to be in debt.
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