Starting early allows your investments more time to compound, maximising your returns. In conclusion, compound interest can work in your favour while investing, allowing your money to grow over time. The interest earned accumulates at a quick pace over time.
With each compounding cycle, the base for computing interest grows larger, resulting in a snowball effect. The higher the investment period, there will be more compounding, and it will give more time for your investment to grow. The higher the interest rate, the more you will accumulate in your investment period. Hence, in the long term, you can generate more wealth due to the power of compounding.Ĭompounding interest is affected by two factors: Rate of return and Investment period: This process continues yearly, and you earn interest on the combined balance of principal and earned interest. Then, this interest is added to the principal, and in the next period, interest is calculated on this combined balance. It starts with when your investment starts earning interest. Compound interest calculates interest on the principal and interest components.
