![]() ![]() The 13 % difference from the invested sum is yet significant. Simple count of ten 5 % capitalisations is 50 % but the actual growth of the invested money is 63 %. However, what will be the effect after 10 years? The 0.8 % difference between the simple count of the annual capitalisations and the correct count of compound interest in the previous example was approximately EUR 8. It's not too much. First feature of compound interest: The actual capitalisation is mostly higher than a simple count of the annual investment yields. interests on the already obtained interests (or yields in the world of investments). That's the effect of compound interest, i.e. Similarly, after the third year the investment value is EUR 1,102* (1 + 5 %) = EUR 1,157.6. ![]() Next year, it's not only our initial investment that's capitalised but also our gain from the first year – the investment value at the end of the second year is EUR 1,050 * (1 + 5 %) = EUR 1,102. Our investment will be worth EUR 1,000* after the first year (1 + 5 %) = EUR 1,050. Let's suppose that we have invested into a mixed fund for 3 years. The monthly report states that our fund has increased exactly by 5 % each year. What is the overall yield? You may already guess that it is not 5 % + 5 % + 5 % = 15 %. Most often it's called compound interest but some financial columnists call it the eighth wonder of the world. However, the same effect can be seen with investments but it helps increase wealth in this case. That's because we pay interest for a large part of the sum more times. As he said, “He, who understands it, earns it…He, who doesn't…pays it.” Maybe it sounds exaggerated but when you count, you find out it's not.Įveryone who has ever had a mortgage loan knows that the longer he pays, the higher extra sum is paid on interests. How can Einstein's genius help your money?Īccording to Einstein, compound interest is the eighth wonder of the world. Ability to repay Consumer loan TB insuranceĮinstein's advice on how to earn money with the eighth wonder of the world.Insurance of property and natural person liability.Refinancing Mortgage Loan TB Calculator. ![]()
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