Did you know you compound interest can help you increase your savings? Yes, it can do wonder by adding to your existing savings. Compound interest can help you earn more than what you invested initially and fulfill your long term savings goals by providing higher and assured returns.
So, what is compound interest?
It is a kind of interest on interest; an addition of interest to the principal amount of your deposit. Compound interest which is added to the principal amount of your deposit or a loan, helps a loan or a deposit grow at a faster pace. Compound interest is calculated on the initial principal amount as well as on the accumulated interest of a deposit or a loan. This addition of interest to the principal as well as accumulated interest of the previous years is known as compounding. The compounding frequency determines the interest you will receive on your deposits. The higher the frequency of compounding, the higher the compound interest is.
Compound interest rate is particularly beneficial for investing in fixed deposits. By using a compound interest calculator, you can calculate the compound interest on your deposit or a loan.
How compound interest helps you earn more:
You can be rich gradually by investing at compound rates of interest. The compounding rate of interest may work for you in the following ways:
Start your investments early: When your start your investments early in your career at compound rate of interest, the possibility is very much there that it will add to your returns. So don’t wait, make your as early as possible to add more value to you your investment
Invest regularly: Make it a habit to make regular investments. In the initial years, you may not be able to see the difference. But if you keep on investing at compound interest rates, you will see the difference. Investments giving lower returns in the initial stages may produce higher returns in the long run. Always, it’s important to look at the bigger picture, not short term goals. Besides, a proper asset allocation plan will also help you add more value to your savings by managing the risk factors. A well – thought out asset allocation plan always helps in long term wealth generation.
Stay invested for a longer time: It is very important to be patient and keep your investments intact for a longer time. The magic of compounding works only when you invest your savings for a longer duration. Do not withdraw or touch your savings, unless you really need them. Let them remain invested for a longer time and grow. Although, you will witness slow progress in the initial stage, it will pay off in the long run.So, if you are intending to earn more profit from compounding rate of interest, invest regularly and invest for a longer duration. Make your investments at the early stage of your life and give time to your investments. Definitely, compounding will show its magic and double your returns.