Time Value of Money

[karikature]

http://www.financescholar.com/timevalueofmoney.html

"Compounding Interest - This is the process of accumulating interest earnings in an investment over time, to further increase the interest earnings. Here's a simple example:

- You invest $100 today into a savings account earning you 10% interest rate compounded annually.

- At the end of Year 1, you'd have $100 + ($100 * 10%) = $100 + $10 = $110"

how many of you have a compound interest savings account when you accumulate your earned interest year after year... i read if you do this for 15-25 years, you'll be an easy millionaire (depending on how much you save)

 

[smooking39]

i think your slightly over exagerating there

 

[Dan26]

I used to have an account like that.

But then I changed it to an offset account for my mortgage instead. What that means is the money that goes into this offest account comes off my mortgage, and I pay less interest.

So, if I have 50,000 to pay off my house loan, and I have 30,000 in my offest account I only pay interest on $20,000 instead of $50,000.

I found that saves me far more money, than simply getting "interest."

In fact, I nearly have more money in my offest account than what I owe on my house, so I am "almost" paying no interest.

 

[SorryIHammerChicken]

how many of you have a compound interest savings account when you accumulate your earned interest year after year... i read if you do this for 15-25 years, you'll be an easy millionaire (depending on how much you save)

Then all you need to find is an investment with a guaranteed good rate of return...easier said than done? And can you get savings accounts with compound interest?

 

[smooking39]

Dont all bank accounts use compound intrest. I dont think anything use simple intrest

 

[Mastablingbling]

Dont all bank accounts use compound intrest. I dont think anything use simple intrest

If you keep the interest earned in the same account it will compound (because interest is calculated on the balance of that account).

As with all rates of return you need to take into account the rate of inflation to find the real return.

roughly...if your interest rate is 5% and inflation is 3%, you are actually only acheiving a real return on your money of 2% (there is a formula which will calculate this with a slightly different result).

 

[Philzsay]

- You invest $100 today into a savi...s account earning 10% these days?? :confused:

 

[GeneralDisarray]

Maybe he means term deposit, hence the higher interest rate.