Compound Interest In Current Events
A recent development in compound interest accounts is the rising popularity of I Bonds. I Bonds, or Series I Savings Bonds, are issued directly by the U.S. Treasury and pay interest based on the countryâs current inflation rate.
The bonds have a low fixed base rate that is paid for the life of the loan and an additional inflation rate that is set twice a year based on the Consumer Price Index . In August 2022, after a few consecutive months with inflation exceeding 8%, the rate on I Bonds was 9.62%.
I Bonds are certainly an interesting investment — earning 9.62% on an investment backed by the full faith and credit of the U.S. government is a pretty easy decision. But the bonds really make sense only when inflation is raging. The base rate for bonds issued since May 2000 is 0%, and the last time the base rate was even as high as 1% was 15 years ago. Additionally, prior to the November 2021 rate change, the inflation rate had gone over 2% only four times since September 1998. For comparison, the inflation rate was negative twice over that period.
Finally, the rate is tied to the overall CPI, which means it may still be lower than the inflation you experience in your everyday life. For example, in July 2022, the overall CPI came in at 8.5% for the previous 12 months, but energy prices were up 32.9% and food prices were up 10.9% over the same period.
Invest In The Philippines Stock Exchange
Investing in the Philippines Stock Exchange is one of the best investments for long-term investors. Compound interest works especially well with long-term investors and the Philippine Stock Exchange therefore, using the power of compound interest with the Philippine Stock Exchange can be very powerful.
Owning stock in the Philippine Stock Exchange will not allow you to earn any interest however, investors looking for compound interest in the Philippines have the option to reinvest their dividend payment. Dividends are a way that companies can reward their stockholders. Investors can then reinvest this reward and utilize the power of compound interest with the Philippines stock exchange.
Previously we have spoken about how to invest in blue-chip stocks, how to buy Jollibee stocks,SM stocks, Alaya land, and so much more. These simple beginner guides go through the process of investing, which is perfect for investors looking for investments with compound interest in the Philippines.
What Is Compound Interest Investing
Compound interest investing is the process of investing in assets that routinely pay you and grow exponentially.
Investing your money in things like an index fund, mutual fund, or treasury securities are all examples of compound interest investing that can turn your money into more money.
When you invest in compound interest, your money will grow exponentially and allow you to build wealth from nothing.
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* Earn Compound Interest On Cryptocurrency
This asset class cant be overlooked anymore.
In this case, you can leverage a strategy called dollar-cost averaging and buy Bitcoin every month, no matter what price is.
Then over time, it grows, and it is one of the most powerful compound interest investments for long-term strategy.
Moreover, there are Fintech companies that offer a juicy annual return plus compounding interest every month.
But thats not all.
Because some cryptocurrencies also pay dividends.
I recommend doing your research if you want to be part of this high-performing asset class.
Time To Take Massive Actions And Choose Best Compound Interest Investment Vehicles
I would like to conclude this blog post with the same question I was asking you at the beginning.
What can be the best compound interest investments for you?
In order to answer this question, take into consideration these factors:
- Your financial goals
- And of course your risk tolerance.
So leave us a comment below
Now, if you should remember just one thing from this video, get this:
If you commit to being wealthy, choosing the right compound interest investments will build significantly your wealth over time. Pat VC
Because to have professional investment skills is part of holistic wealth.
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How The Power Of Compounding Works In Investments
When an investor invests a certain amount, the interest earned on this amount is added to the principal. Then new interest is earned on the new principal amount. In simple terms, compound interest makes interest on interest.
Considering the above example, where Mr. Hari invests a lump sum of INR 5,00,000 for a period of 10 years at a 10% rate of return.
Below is the tabulated data of interest earned during the investment tenure of Mr. Hari. In Scenario 1, the interest earned is reinvested while in Scenario 2, interest is withdrawn every year.
|Rs 500,000||Rs 50,000|
In Scenario 1, the total interest earned is INR 7,96,871, and the total value of the investment at the end of 10 years is INR 1,296,871.
In Scenario 2, the total interest earned is INR 5,00,000, and the total value of the investment at the end of 10 years is INR 1,000,000.
Here the maturity amount in scenario 1 is higher because the interest is being reinvested, and every year interest is calculated on the new principal amount. In other words interest is calculated using compound interest. This little reinvestment of the interest is helping Mr. Hari to earn nearly INR 2.96 lakhs more when compared to taking out the interest earned every year. This example shows the power of compound interest.
The longer the investment duration, the higher are the returns. The sooner one starts investing, the more money starts working overtime, and the sooner itll help in achieving financial freedom.
What Kinds Of Accounts Have Compound Interest
There are many different types of compound interest accounts. Most of them will require you to use brokerage services to open an investment account.
However, with some options, only bank accounts are necessary.
If youre looking for a place to invest your money and earn compound interest, here are some of the best compound interest investments.
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How Does Compounding Occur In Mutual Funds
Mutual funds are designed to make the most out of the power of compounding. Investors gain when the value of fund units goes up. If you invest with a long-term horizon, then the power of compounding will be unleashed to the fullest, which helps you grow your investment. This is particularly the case in mutual funds as the returns generated in the form of capital gains are reinvested to create additional profits.
If you choose to invest Rs 1,000 a month in a mutual fund scheme for the next ten years, and if the rate of return is 8% per annum, then you will notice that your investment of Rs 1,20,000 in 10 years will yield you a profit of Rs 1,82,946. Now if you choose to invest it further for say another ten years, then money now reinvested will grow even faster to fetch you Rs 3,94,967. A unique feature of compounding is that your existing investment, along with the return on investment and the new investment each month, all contribute towards further gains. Example
If you begin investing Rs 1 lakh a year and increase your investment by 10% a year, then this is how compounded interest helps your money grow:
Mutual Funds And Index Funds
Mutual funds and index funds are very similar as they share similar properties however, there is a difference. If you are looking to invest in mutual funds, you can invest via the Philippine Stock Exchange. To do this, you will need a stock brokerage.
Index funds are often advertised as an investment banking product with most banks nationwide. These investment funds are pegged to the Philippine Stock Exchange, and similar to mutual funds, there are different types of index funds with different returns and risks.
Compound interest with these funds tends to be automatically reinvested into the fund. This will, in turn, help your investment grow. But this will depend on the bank or company you are using to invest. Iâve added a full guide on purchasing funds on the links above if you are looking for more information.
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Compound Interest Formula Excel
You can calculate compound interest in Microsoft Excel using the Future Value financial function:
- rate = the interest rate per period
- nper = the total number of times interest is calculated
- pmt = the additional money you add each period
- pv = the present value, or the initial deposit. If you omit this, its assumed to be 0.
- type = either the number 0 or 1. 0 indicates payments are due at the end of the period while 1 indicates payments are due at the start of the period. If you omit this, its assumed to be 0.
If you leave out the pmt variable, youll get the same result as the first equation. To continue with the example above, heres what would happen if you added $100 a month to your initial $5,000 deposit:
After 10 years at 5% interest, you would end up with about $23,763.
If you dont want to do the math yourself, a compound interest calculator will do all of the work for you.
Can I Get Rich By Compound Interest
Compound interest is a powerful tool that can help you become wealthy. When you invest money in the stock market or a bank, it grows over time.
Thats because the interest earned on your investment is reinvested, which allows you to earn more interest on a larger sum of money. This process is called compounding, and its why compound interest is so powerful.
Compound interest is a powerful tool that can help you become wealthy. But theres another way to use compounding to get rich:
Compound interest is a powerful force. It can turn a small amount of money into a large sum over time, provided you reinvest the returns. The following examples show how compound interest works and how it can help you get rich.
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How To Earn Compound Interest Daily
The safest and easiest account is a high yield savings account through CIT Bank. You can earn over 1% compound interest on your money which is one of the highest paying accounts on the market.
Other great options include peer to peer lending platforms or real estate crowdfunding sites like Fundrise.
Earning compound interest daily can help you reach your financial goals much quicker.
Final Thoughts On 12% Compound Interest Accounts
Earning 12% in compound interest from your investments is an awesome goal to strive for and it’s possible through some methods.
There are several index funds, ETFs, and other investment options that you can grow your money with earn compound interest.
It’s important to remember that past performance is no guarantee of future results, so be careful and only invest what you can afford to lose.
To limit risk, diversifying your portfolio is essential. By using a combination of stock market investments as well as savings accounts or money market accounts you can keep your money safe and generate compound interest effortlessly.
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What Is The Highest Compound Interest Rate At A Bank
CIT Banks Money Market account has one of the highest compound interest rates of any bank. And as an added bonus, there are no fees and you only need $100 to open an account with them.
Clearly this is far less than a 12% compound interest account. But if you need to keep your money somewhere safe or for a shorter term, this is a great option.
Does Compound Interest Really Work
Compound interest is the key to any strategy to grow your wealth.
With some time, it can turn a relatively low initial investment into an amount that can ensure your financial security for the years to come.
you can take advantage of having as much time as you can for your money to grow.
After all, even a few extra years in a low-cost index fund can have a massive effect on the value of your portfolio in future.
How much interest does $10,000 earn a year?
If you invest $10,000 in a 12% compound interest account, it will be worth $11,200 at the end of that year.
However, the real power comes in the years after that. This is because, in every subsequent year, youll then be earning 12% compound interest on the new amount.
After five years, this means your initial investment will be worth $17,623.42. After 30 years, youll hold $299,599.22 all from just a starting amount of $10,000.
Not too bad. But what if you add $10,000 every year?
After five years, your $50,000 investment will be worth $71,151.89.
Andin 30 years, youll have a massive $2,702,926 from investing a total of $300,000 during that time.
If anything should show the power of compound interest, its results like that.
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How much will $100k be worth in 20 years?
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Invest In Retirement Accounts
While this is not specifically an investment, it’s a great way to grow your money and generate compounding returns on your money.
It’s important to keep in mind that these accounts can only be used to save for retirement and you’ll face strong penalties if you withdraw money from them before retirement age.
There are also limits to the amount of money you can contribute to these accounts.
Boost Savings With Compound Interest
If your goal is to save for the future, or perhaps start putting away for your childrens education – then unless you plan on putting your savings under your mattress, the sooner you start the better.
Thats because you could be missing out on earning compound interest along the way that could make a stark difference to the overall amount you save.
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Use The Buy And Hold Strategy
Investing with compound interest is only a good strategy if youre prepared to hold steady when the market fluctuates. In other words, you must have both patience and decent risk tolerance.
People who do well with compound interest are those who leave their money alone and allow it to grow. If you constantly move your money around or withdraw it when the stock market declines, you wont get the benefit of compound growth in the same way you would if you left it alone.
It may be helpful to know that the overall, long-term trend of the stock market is up. Its also important to remember that the Dow Jones Industrial Average and NASDAQ are only two of many indices in the market. They do not represent the market as a whole they just get the lions share of the attention.
Best Stocks For Compound Interest
There are many ways to build wealth, and everyone who has amassed a fortune has their preferred method. Sometimes it involves real estate development. Other times, an investor lucked into getting in on a high-growth stock early. However, in a vast majority of cases, success is a simple matter of discipline and determination.
The sort of real estate projects that create billionaires like Stephen Ross , Sun Hongbin , and Donald Bren are out of reach for average investors. They require massive amounts of capital up-front, as well as the ability to absorb significant risks.
Choosing the next Amazon , Apple , Google , or Microsoft when shares first become available is an equally unreliable strategy. It can happen, but most investors dont hit millionaire status that way.
The most dependable method of realizing long-term portfolio growth is the one championed by the Oracle of Omaha Warren Buffett. It relies on making regular investments in high-quality companies, then leaving them untouched while time creates long-term returns through compounding.
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How To Invest In 12% Compound Interest Accounts
The way to invest in these 12% compound interest accounts depends on the type of investment.
Specifically, for index funds, these are divided as follows.
ETFs are purchased through a brokerage account and are traded like stocks.
You buy them from other market participants, which may be an individual investor or, more likely, a firm that specializes in buying and selling ETFs.
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Mutual funds, including those that track an index, are bought directly from a fund company, like Vanguard as seen from the options on this list.
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Who Benefits From Compound Interest
Both financial institutions and consumers benefit from compound interest. Banks pay compounding interest to consumers at low interest rates in exchange for their not withdrawing funds and simultaneously lend the deposited money to earn attractive streams of interest income.
Consumers can use compound interest in either the types of accounts discussed above or with stock returns to turn a relatively small nest egg into a healthy retirement account over time.
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