The Good And The Bad Of Compound Interest

There\’s something so incredible that it can create amazing riches in your life or devastating financial ruin, depending how you use it. However,this thing is not taught in school, and most of us don\’t learn about it until it\’s too late. If you get in on the game early, you can look forward to a life filled with easy wealth. What is this seemingly revolutionary device that carries with it so much magical power? Compound interest.

What exactly is interest in the first place? Whenever you buy something, you exchange money for whatever it is you want. But what if it\’s money that you want? You exchange more money in the future, for the money that you want now. The difference is called interest.

Borrowing money means you are paying interest. Lending money means you are receiving interest. Anytime you put money in the bank, buy a CD, or buy a bond, you are lending money, for which you will receive interest.

So how does the compounding come in? Say you put a hundred bucks in the bank, at five percent interest. A year later, you\’ve got a hundred and five bucks. A year after that, you\’ve got a little over 110 dollars. In five years, you\’ll have almost 130 dollars. The more money in your account, the more interest you get. At five percent interest, your money will double every fifteen years.

On the other hand, let\’s say you buy something with your credit card. Credit cards usually charge interest rates between ten and twenty percent. If you have a balance of a thousand dollars, then you are paying two hundred dollars in interest every year. If you pay less than two hundred dollars in payments, your balance will continue to go up. In five years, your balance will double.

Making the most of compound interest is easy if you get started early. The longer you leave your money in the bank, the larger your bank account will grow. Also, the quicker you pay off your credit cards, the easier it will be.

When used correctly, compound interest can be a great thing. Just get started early, and you\’ll have nothing to worry about.

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