I don’t understand it like at all. I’ve heard it’s beneficial moneywise but I don’t understand why or how to invest in compounds??
Reading online it seems that it’s beneficial however that’s all I seem to understand so if it is something to look into and invest in I’d like to Understand it better 🙂
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Compound interest really just means that when you get interest, it’s added to your account as if it was money you always had. Then the next time they calculate how much interest you should have, the interest from the last round is included and you should get a little bit more money than last time.
Like, if you have $1000 in a bank account and get 1% interest, that’s $10 added. So now you have $1010 in the account. Next round of interest is calculated on that and you get $10.10 in interest, slightly more.
The “non-compound” way would just keep giving you $10 each interest cycle instead.
Is it worth it? Ultimately, yes, but as you can see from my numerical example, after 2 years, you’re only up 10 cents. Yay, more money, but the improvement isn’t as substantial as some people think it is. My example only paid out once a year to make the math easy, and monthly interest calculations will benefit you better, but it’s still not the magic bullet people wish it were. Unless you can get a really nice interest rate.
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