30 years: Financial markets trader
Compounding is one of the most powerful concepts in finance. Abdulla compares simple versus compound interest and the importance of understanding the difference.
Compounding is one of the most powerful concepts in finance. Abdulla compares simple versus compound interest and the importance of understanding the difference.
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5 mins 28 secs
With simple interest, a depositor receiving annual interest from a deposit removes the interest and just reinvests the principal and earns the annual interest rate. With compound interest, the depositor reinvests the principal and interest every year i.e. the interest earns interest so the amount of interest received goes up each year.
Key learning objectives:
Apply the simple vs compound interest rate scenario to an investment
Learn how simple and compound interest differ
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