What is compound interest?

Answer 1

If you go to several of the web sites for the more popular mutual funds, they will show you the growth rate of each fund that they sell. Those growth rates are with dividends reivested which is misleading because you have to pay taxes on those dividends. But nevertheless so is the interest on a savings account that is reinvested.

The basic causes of this growth rate for these mutual funds are two. 1. the growth of the earnings of the companies that the mutual fund invests in and 2. the management ability of the mutual fund managers.

One more thing: This is not really compound interest. It is actually growth of capital gains and reivested dividends. There is a difference that becomes more obvious when you fill out your income taxes. The tax rate is less on captial gains and dividens than on interest.

Here are links to a couple of mutual funds that are among my favorites.

T Rowe Price Capital Appreciation Fund

http://www.troweprice.com/common/indexFu...

Royce Pennsyvania Mutual Fund

http://www.roycefunds.com/funds/fundInfo...

Answer 2

Compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on. The act of declaring interest to be principal is called compounding (i.e. interest is compounded).

Interest rates must be comparable in order to be useful, and in order to be comparable, the interest rate and the compounding frequency must be disclosed. Since most people think of rates as a yearly percentage, many governments require financial institutions to disclose a (notionally) comparable yearly interest rate on deposits or advances. Compound interest rates may be referred to as Annual Percentage Rate, Effective interest rate, Effective Annual Rate, and by other terms. When a fee is charged up front to obtain a loan, APR usually counts that cost as well as the compound interest in converting to the equivalent rate. These government requirements assist consumers to more easily compare the actual cost of borrowing.

Compound interest rates may be converted to allow for comparison: for any given interest rate and compounding frequency, an "equivalent" rate for a different compounding frequency exists.

Compound interest may be contrasted with simple interest, where interest is not added to the principal (there is no compounding). Compound interest predominates in finance and economics, and simple interest is used infrequently (although certain financial products may contain elements of simple interest).

Answer 3

Simple interest is when you pay a % on the principle...the money borrowed. Compound interest is when you pay interest on both the principle and on the interest. It is interest on /multiplied by interest. Compound interest can make, or break, Empires.

Answer 4

interest on interest......u have 100 dollars u make 10% interest you have 110 then you make 10% interest on 110 you have 121.

You have 121$ in my example if you have compound interest
Without compound interest you would just get 10$ every year

Answer 5

It's the equation An=Ao+(1+r)^t

Where...

An is the total amount
Ao is the innital amount
r is the rate, percentage as a decimal
t is times in a year

For example, in a savings account you get a small percentage of interest. Assuming that you don't take any money out, that number will grow and grow.

Answer 6

Read this from dividendinvestor.com about the power of dividend growth and compound interest:

http://dividendinvestor.com/learn-more.php

Answer 7

It is what happens if you default payment on your credit card; they add the interest for that month to your total current owing and then charge you interest on that for the next month. If you miss your payments every month but you don't use your card any more, your amount owing keeps going up any way. You can understand why the banks and credit card companies like that.

Answer 8

it is interest that is computed by adding the previously earned interest to the principle.