{"id":13519,"date":"2014-02-17T07:00:54","date_gmt":"2014-02-17T13:00:54","guid":{"rendered":"http:\/\/blogs.uww.edu\/library\/?p=13519"},"modified":"2014-02-14T09:01:41","modified_gmt":"2014-02-14T15:01:41","slug":"money-mondays-compound-interest","status":"publish","type":"post","link":"https:\/\/blogs.uww.edu\/library\/archives\/13519","title":{"rendered":"Money Mondays: Compound Interest"},"content":{"rendered":"

In case last week\u2019s blog didn\u2019t convince you of the benefits of saving, this week we\u2019re going to talk about compound interest. Compound interest is often referred to as interest on interest because it is \u201ccalculated on the sum loaned plus any interest that has accrued in previous periods\u201d (check out the Oxford Dictionary of Business and Management<\/a>, available online through Andersen Library, for more definitions like this). This is in contrast to simple interest, which only accrues interest on the principal amount. <\/p>\n

Stick with me. A fair amount of financial jargon was just used, but understanding compound interest is critical if you want to save money and pay off debt efficiently. Compound interest is a two-edged sword. It\u2019s a fantastic help when saving money and it\u2019s a tremendous burden when you owe money. Here\u2019s how compound interest works:<\/p>\n

\"Bunny<\/p>\n

You have 100 bunnies; this is your \u201cprincipal.\u201d Each month you get 10 more bunnies, just for kicks. If the bunnies never reproduced, at the end of one year you would have 220 bunnies. However, your bunnies reproduce (compound) at a rate of 0.5% each month, or 6% per year. At the end of one year, you\u2019ll have about 229 bunnies. That\u2019s 9 more bunnies than you would have had without any reproduction (ahem, compounding)! The longer you do this, the more bunnies you\u2019ll have. Before you know it, you\u2019ll have about a zillion bunnies.<\/p>\n

(A lot of math goes into finding that 229 number, and I don\u2019t want to scare you off. You can use this calculator<\/a> to get the result I got above. Make sure you use an interest rate of 6% (0.5% x 12 months) and put 12 into the times per year<\/em> box.)<\/p>\n

Now let\u2019s translate compound interest into dollar terms. You put $100 into a savings account and add $10 each month. The interest rate on your savings account is 6%, and the interest compounds monthly (or at a rate of 0.5% each month). If you don\u2019t take money out and you continue to add $10 a month, in 30 years you\u2019ll have about $10,647. Compare this to the $3,700 you would have if all you did was add $10 a month without the benefit of compound interest. <\/p>\n

Keep in mind that compound interest is also used in debt situations and the interest rates are usually higher. This means your debt will accumulate much faster than your savings. To learn more, check out this video from the Federal Reserve Bank of St. Louis’ No Frill’s Money Skills series<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

In case last week\u2019s blog didn\u2019t convince you of the benefits of saving, this week we\u2019re going to talk about compound interest. Compound interest is often referred to as interest on interest because it is \u201ccalculated on the sum loaned … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":3863,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[52336],"tags":[52349,2577,1773,274],"class_list":["post-13519","post","type-post","status-publish","format-standard","hentry","category-money-mondays","tag-compound-interest","tag-financial-literacy","tag-money","tag-personal-finance"],"_links":{"self":[{"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/posts\/13519","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/users\/3863"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/comments?post=13519"}],"version-history":[{"count":7,"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/posts\/13519\/revisions"}],"predecessor-version":[{"id":13619,"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/posts\/13519\/revisions\/13619"}],"wp:attachment":[{"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/media?parent=13519"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/categories?post=13519"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.uww.edu\/library\/wp-json\/wp\/v2\/tags?post=13519"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}