Compounding your money is a simple and effective way to make interest work in your favor.
In general terms, the more times you compound your money, the more interest you stand to make on your investments.
Furthermore, the more money you invest, the more money you can make.
Sounds simple right? However, it can be a little complicated.
You need to know the initial investment amount, the rate of interest, the number of years you plan to invest and the number of time per year you plan to compound your money.
Still with me? Good.
Okay, now you need to plug what you know into a formula and get out that trusty scientific calculator (not so simple after all).
Initial Investment=p Interest rate=r Years you plan to invest= y Number of times you plan to compound per year= t.
Are you ready? Total Value = p(1 + r/t) ty Now simply plug in the numbers to find out what you can make by compounding your money.
For example, say you plan on investing $10,000 into a savings account which makes 5 per cent interest annually.
Say you plan to compound monthly (12 per year) and you plan on leaving this money along for 5 years.
Your compound money would look like this: 10,000(1 + .
05/12)12 X 5 = $12,833.
59 Try it for yourself and see how much money you could make with compounded interest.
Or, if you don't have a scientific calculator handy, Google 'compound interest calculator'.
There are hundreds of websites that will do the math for you.