How can you not be intrigued by the concept of compound interest? It’s an idea that every single person should know about, but most people don’t have the foggiest clue as to what it means and how it works. In this article, we are going to explain to you the basics of compound interest and why you should take online math classes when learning about them. Of course, you probably already know that there are plenty of other benefits that come from taking online math classes, but this post will only be about compound interest.
How Can Online Math Classes Help to Understand Compound Interest Better?
Before I started online math classes, I struggled to understand compound interest. The concept of adding interest on top of interest sounded difficult to grasp and was incredibly difficult for me to relate to. Luckily, my math teacher offered online math classes and over time I finally understood how it works. Today, let’s talk about how these online math classes helped me achieve my goal by first explaining what compound interest is.
- Online math classes are an excellent way to learn new concepts as they allow you to learn at your own pace.
- They also help you practice new skills until you feel comfortable enough with them that you can apply them in real-life situations.
- Finally, online math classes give you a chance to study with other students who are going through similar struggles as yourself.
If you’re struggling to understand compound interest, I highly recommend taking an online math class or two!
What is Compound Interest and its Example?
Compound interest is interest that is paid not only on the original principal but also on the accumulated interest of previous periods. For example, a bank account pays compound interest each year, they’ll add last year’s interest to your current account balance and calculate interest on that larger amount (rather than just your original deposit). So even if you’re earning only a modest annual percentage rate, compound interest can boost your savings in time.
Example 1: A savings account with an annual percentage rate of 5% that compounds interest monthly will have a balance of $10,000 after one year. If you leave it there for another year, you’ll earn another $50 in interest (for a total of $500), and your balance will be $10,500. After three years, you’ll have $11,025.
Example 2: A college student with a summer job decides to save her earnings instead of spending them. She’s able to save $2,000 in one year. If she leaves that money in her savings account for ten years and earns 5% interest each year, she’ll have saved more than $6,700 – almost twice as much!
One thing is clear from these examples: compound interest can be an incredibly powerful tool if you are willing to invest your time into it. The earlier you start saving and investing, the better off you will be later on down the road.
Types of Compound Interest
There are several different types of compound interest that you can learn about. Which are mentioned below:
- Periodic Compounding: This is when interest is added to your account periodically. For example, if you have an account that accrues interest monthly, then it will be compounded monthly. The benefit of periodic compounding is that you receive a little bit more money each time because you’re earning interest on your original principal as well as on any previous interest that has been added to your account.
- Continuous Compounding: This type of compound interest is when interest is added to your account daily, weekly, or monthly. The benefit of continuous compounding is that you get your money working faster.
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