ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -Over the long term, compound growth can multiply your initial investment exponentially. In our hypothetical example, if your return stayed at 6%, by year 30, your annual earnings would be $325.10. That’s more than five times the $60 return you earned the first year-just for sitting by and letting your money grow 1.

Detailed explanation-3: -Compound interest causes your wealth to grow faster. It makes a sum of money grow at a faster rate than simple interest because you will earn returns on the money you invest, as well as on returns at the end of every compounding period.

Detailed explanation-4: -The power of compounding interest Compounding interest can turn meager investments into wealth over time, but only if you start investing as soon as possible and then stay invested. The sooner you start investing, the more time you have for interest to compound on interest.

Detailed explanation-5: -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.