LESSON #4 Time is Money!

The 8th Wonder of the World!

Compoun d Interest
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Simple Interest vs. Compound Interest

The difference between simple and compound interest is the difference between night and day. You will want to remember this simple rule:

simple interest grows slowly, compounding speeds up the process.

Simple Interest
original principal only

- simple interest is interest paid on the

Compound Interest

compound interest is the interest earned not only on the original principal, but also on all interests earned previously

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January March April May June July August

Compounding! The 8th Wonder of the Month $$$ at start of month interest Total for that month World!
$100 $10 $11 $12.10 $13.31 $14.64 $16.11 $17.72 $19.49 $21.44 $23.58 $25.97 $28.56 $110 $121 $133.10 $146.41 $161.05 $177.16 $194.88 $214.37 $235.81 $259.66 $285.63 $314.19!!! $110 $121 $133.10 $146.41 $161.05 $177.16 $194.88 $235.81 $259.66 $285.63

February

September $214.37 October November December

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After
1 year 2 years 3 years 4 years 5 years 10 years 20 years 40 years 50 years

Simple Interest
110 120 130 140 150 200 300 500 600

Compound Interest
110 121 133 146 161 259 672 4,526 11,739

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The Magic of Compounding!

HOW DOES IT WORK? For Compounding to work you need to consider:

AMOUNT the larger amount of money you save regularly, the more savings you will have at the end RATE OF RETURN the higher the interest rate you are paid, the more savings you will have at the end

TIME!

the more time you have to save, the more savings you will have at the 4/19/12