Compound interest is the interest that is paid on the original principle of a loan and the unpaid interest that has accrued. For any type of investments, compound interest is the principle that allows a positive ‘snowball’ effect, allowing the investor to start gaining much more in time.
Compound interest is very important for long-term investment gains, so understanding it is key for a fruitful investment strategy.
Compound interest is the interest on savings calculated on both the initial principal and the accumulated interest from previous periods.
"Interest on interest," or the power of compound interest, is believed to have originated in 17th-century Italy. It will make a sum grow faster than simple interest, which is calculated only on the principal amount.
For the purposes of calculating ROI on an ongoing investment, interest can be compounded on any given frequency schedule, from continuous to daily to annually.
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