Have you heard of compound interest? It is very good to understand this modality, because this is exactly how the money can start working for you, because in the same way that compound interest is a headache for those who owe it, it can be a paradise for those who apply.
In this article, we will explain quickly and simply how compound interest works, so that the beginner investor can understand how to make his investments. It is worth remembering that it is also good to learn how to use a simulator for compound interest.
The financial world really has many nuances, such as compound interest, for example, first let's understand what compound interest is, and how you can succeed in investments using this tool. Open mind, and always seek new knowledge!
Definition of compound interest
Compound interest is nothing more than interest that you receive or pay when borrowing or lending. It is worth remembering that the investment will always be a loan that the investor is making to some institution, whatever it may be.
The reasoning is quite simple, when you take out a loan from the bank, naturally you pay the compound interest, which really increases the debt a lot, especially in the case of delays, such as with a credit card, for example, by the way, you have to be careful to not fall into revolving credit.
The opposite is also true, when you make an investment, naturally you are lending your money to other institutions, in the same way you will be able to receive compound interest, because now you become the creditor, thus receiving interest on interest.
Compound interest and opportunities
When you make an investment, and naturally you are lending your money to institutions, you will receive compound interest, exactly how the "CDB" modality works, one of the best known by investors in the market and also the most used.
It is worth emphasizing that in our country, the highest interest rates on the planet are practiced, that is, whoever lends money will receive much more than the amount lent, as well as those who owe, will always have the final amount of the debt greater than that when you contracted it.
The rule is quite simple, for people who make investments, and in the case of those who make investments in the fixed income modality, their receipts will always be greater. Since we can understand well how compound interest works, let's see better how they work in practice in the market.
How interest on interest works
The modality of compound interest, is also well known by the term "interest on interest" which means that your money will always increase because each month that passes your capital is greater, in this way interest on interest is applied.
To better understand, let's take the following example; imagine that you have r$ 100, in the case of simple interest, if the rate were 10% per month, at the end of a month you would have r$ 110, in the second month, these 10% would fall on the initial r$ 100, in this way, it is characterized the simple pledge.
As for compound interest, imagine the same situation, you have r$ 100, and your rate of return is 10% per month, at the end of the first month you will have r$ 110, being your initial capital, plus the rate of 10% , but in the second month, the return is applied on your most recent capital, that is, on r$ 110, so your 10% return would be r$ 11, that is, r$ 1 more than in the first month, and so on for the coming months.
Advantage of interest over interest
- Remember that at the beginning of the article, we said that ideally, your money should work for you? In the compound interest modality, your earnings can really be very interesting and your money to work for you.
- If you are the creditor, that is, an investor, the tendency is that you always receive a value greater than that invested, bearing in mind that even if the debtor does not pay, the default rate is already built into this process, that is, you always win.
- The advantages are countless, but you need to understand where to best invest your money.
How to make investments online
If you want to invest in the financial market, without leaving your home, there are currently dozens of platforms and brokers to do this. The golden tip is to do a good research on investments before you start applying your money.
Having knowledge, it is very important not to act on impulse, and in this way make premature investments, which can cause losses, it is necessary to look for the most stable modality to dress, even if the result is smaller, but it will be constant and low risk .
For more information and tips about the world of finance, or even to access the most important applications of the moment, visit our apps category. Good luck!