Compound Interest: The Secret Advantages And Disadvantages


Compound Interest: The Secret Advantages And Disadvantages

When it comes to investment, we all are busy comparing the interest rates with other schemes. Interest rates are always on the minds of investors. Do you know that these interest rates can be beneficial for you and can even make your bank account nil? But we don’t think that how interest is calculated and about its long terms benefits. Compound Interest is one such term that turns common man to a billionaire. Therefore, pro investors always earn maximum benefits and many struggle to boost their savings. In this article, we’ll discuss about compound interest and its pros and cons.

What Is Compound Interest?

Compound Interest: The Secret Advantages And Disadvantages
Compound Interest: The Secret Advantages And Disadvantages

Compound interest has always been a controversial topic since decades. Even many cultures don’t follow the rules of earning interest on the principal amount. Both Christian and Islamic were against it, but later they understood that it is important to maximize their savings. If you understand it, you’ll be in profit otherwise keep loosing your time and money. Even the famous scientist Albert Einstein also believed in the benefits of compound interest. Remember, it can be your beneficial friend and even your worst enemy. Therefore, always understand this concept before beginning your investment journey.

How Compound Interest Becomes Your Helpful Friend?

According to the various pro investors, compound interest can double the benefits of your long-term principal amount. More periods of compounding are always profitable for investors. In simpler words, you are earning profits on your earned interest. It means double benefits on the same rate of interest (ROI). Simple interest is not much beneficial like compound interest. Yes, you’ll be earning money on your interest. In this technology-driven, we should play with our savings smartly. Whether you are a long-term or short-term investor, it will always become your best friend. It works on every type of savings and investment.

How This Beneficial Friend Can Become Your Enemy?

Compound Interest: The Secret Advantages And Disadvantages
Compound Interest: The Secret Advantages And Disadvantages

We all prefer taking loans for our children, purchasing a car or new house. But unfortunate situations are always unpredictable. Sometimes repaying the loan amount becomes challenging. This is the time when compound interest changes into the enemy for you. The interest and penalty charges keep on increasing due to delay in repaying the loan. The interest which keeps on building is because of compounding interest. You keep on paying the standard interest along with the plus interest. As time passes out, your bank accounts keep on draining due to the plus interest.

Therefore to get rid of this, always try to pay some extra amount than your monthly EMI. The same rule is applicable even for the credit card bills. Clear off your credit card bills at the earliest. On the other hand, pay some extra money every month during car or home loans will to earn some secret benefits.

Simple interest is always unfavourable when it comes to mutual funds and loan repayments. Therefore, always keep an eye over interest rates when it comes to loan repayments. Remember, it can become your biggest enemy if you don’t act smartly.

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