ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When it comes to investing, compound interest is better since it allows funds to grow at a faster rate than they would in an account with a simple interest rate. Compound interest comes into play when you’re calculating the annual percentage yield. That’s the annual rate of return or the annual cost of borrowing money.

Detailed explanation-2: -When an account uses simple interest, the interest rate only applies to the principal balance. But compound interest gets applied to the principal balance and accumulated interest. Over time, an account that uses compound interest can lead to paying (or earning) more interest than one that uses simple interest.

Detailed explanation-3: -If your investment account earns compound interest, then you are earning interest on interest as well as on your investments. Compound interest is undoubtedly the most important concept to understand when building wealth for the long term.

Detailed explanation-4: -Compound interest makes your money grow faster because interest is calculated on the accumulated interest over time as well as on your original principal. Compounding can create a snowball effect, as the original investments plus the income earned from those investments grow together.

Detailed explanation-5: -Certificates of deposit (CDs) High-yield savings accounts. Bonds and bond funds. Money market accounts. Dividend stocks. Real estate investment trusts (REITs) 02-Aug-2022