Understanding the Impact of Simple vs. Compound Interest on Loans and Investments
Learn the difference between simple and compound interest and how they affect your loan or investment amount.
00:00:04 Learn the difference between simple and compound interest and how they affect your loan or investment amount.
💰 Interest can be earned from saving and investing, with two forms: simple and compound.
🔢 Simple interest is calculated only on the principal, while compound interest includes the interest added back to the principal.
💳 Using a credit card can lead to owing more than the initial cost due to interest.
00:01:09 A comparison between simple and compound interest rates. Simple interest earns $60 in a year while compound interest earns $61.69 with monthly compounding.
💰 Simple interest earns a fixed amount of interest on the principal, while compound interest earns interest on the principal and previously earned interest.
🔄 Compound interest compounds monthly, increasing the principal and allowing for interest to be earned on top of interest.
🔍 Over time, compound interest can result in significant growth compared to simple interest, especially with regular deposits.
00:02:14 Learn the difference between simple and compound interest and how to calculate how long it takes to double your money. Compound interest is better for investing.
💡 The rule of 72 is used to calculate the time it takes to double money in compound interest accounts.
💡 Compound interest is better than simple interest when it comes to investing.
💡 Simple interest is usually best when borrowing money, as it is only charged on the principal balance.
00:03:18 Learn the difference between simple and compound interest and how compound interest can add up quickly when using credit cards.
💰 Each monthly payment is divided between interest and principal balance.
💳 Credit card interest compounds daily on any remaining balance.
💸 Accruing interest can quickly add up over time.
00:04:23 Learn how interest works, use online calculators, find the best rates, pay off loans quickly, and save for compound interest. Be smart about your finances and make the most of your money.
💰 Understanding how interest works is crucial for managing your finances effectively.
⏰ Time is a key factor in minimizing interest payments and maximizing interest earnings.
🔍 Finding the best interest rates is important when borrowing or investing.
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