Compound Interest
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Burning Brakes
Joined: Jul 2001
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From: USA
Compound Interest
Allright guys this is a question that's been bothering me for a while; why is there compound interest. As I understand it's interest on accumulated past interest and the principle. Does anything anymore, when financed, have direct interest? Does direct interest exist?
VV "Precision Crafted" VV
Joined: Oct 2004
Posts: 248
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From: Diamond Bar, CA.
Compound interest exists primarily for long-term investments vehicles.
Simple Interest is used for calculating principal and interest payments on conventional amortizing term loans.
Simple Interest is used for calculating principal and interest payments on conventional amortizing term loans.
I feel the need...
Joined: May 2004
Posts: 14,957
Likes: 515
From: Motown
Rich Man, Poor Man (The Power of Compounding)
by Richard Russell
Dow Theory Letters
Recently by Richard Russell: The Red Arrows
MAKING MONEY: The most popular piece I’ve published in 40 years of writing these Letters was entitled, “Rich Man, Poor Man.” I have had dozens of requests to run this piece again or for permission to reprint it for various business organizations.
Making money entails a lot more than predicting which way the stock or bond markets are heading or trying to figure which stock or fund will double over the next few years. For the great majority of investors, making money requires a plan, self-discipline and desire. I say, “for the great majority of people” because if you’re a Steven Spielberg or a Bill Gates you don’t have to know about the Dow or the markets or about yields or price/earnings ratios. You’re a phenomenon in your own field, and you’re going to make big money as a by-product of your talent and ability. But this kind of genius is rare.
For the average investor, you and me, we’re not geniuses so we have to have a financial plan. In view of this, I offer below a few items that we must be aware of if we are serious about making money.....
Dow Theory Letters
Recently by Richard Russell: The Red Arrows
MAKING MONEY: The most popular piece I’ve published in 40 years of writing these Letters was entitled, “Rich Man, Poor Man.” I have had dozens of requests to run this piece again or for permission to reprint it for various business organizations.
Making money entails a lot more than predicting which way the stock or bond markets are heading or trying to figure which stock or fund will double over the next few years. For the great majority of investors, making money requires a plan, self-discipline and desire. I say, “for the great majority of people” because if you’re a Steven Spielberg or a Bill Gates you don’t have to know about the Dow or the markets or about yields or price/earnings ratios. You’re a phenomenon in your own field, and you’re going to make big money as a by-product of your talent and ability. But this kind of genius is rare.
For the average investor, you and me, we’re not geniuses so we have to have a financial plan. In view of this, I offer below a few items that we must be aware of if we are serious about making money.....
Safety Car
Joined: Jul 2007
Posts: 4,845
Likes: 145
The way I understand it, compound interest is just interest on interest. Like in a savings account, your interest for month 3 includes the earnings from interest in month 2.
I had never thought about compound interest on a debt, but the thought is pretty scary. I suppose it could happen in credit cards if your monthly interest exceeds your minimum payment, leaving behind a higher balance to calulate next month's interest.
I guess I'm a little lost on the question now. Are you asking if it's possible borrow like: Here's a $10000 loan for 2 years at 6%, your total payback is $11200 at $466.67/mo. That sounds like a real disadvantage to anyone who wants the option to pay off the loan early and save on interest.
I had never thought about compound interest on a debt, but the thought is pretty scary. I suppose it could happen in credit cards if your monthly interest exceeds your minimum payment, leaving behind a higher balance to calulate next month's interest.
I guess I'm a little lost on the question now. Are you asking if it's possible borrow like: Here's a $10000 loan for 2 years at 6%, your total payback is $11200 at $466.67/mo. That sounds like a real disadvantage to anyone who wants the option to pay off the loan early and save on interest.
I feel the need...
Joined: May 2004
Posts: 14,957
Likes: 515
From: Motown
The Federal Debt: When Compound Interest Is Crushing
The showdown over increasing the federal debt limit got me thinking about the power of compound interest. It’s always been one of the most powerful forces in the financial universe. And in the case of the debt ceiling, it appears that compound interest has the potential to become a crushing enemy.
Some people fear that the United States will lose its AAA credit-rating or even default temporarily, potentially increasing how much it costs the government to borrow money. According to the Congressional Budget Office, “…a 4-percentage-point across-the-board increase in interest rates would raise federal interest payments next year by about $100 billion; if those higher rates persisted, net interest costs in 2015 would be nearly double the roughly $460 billion that the C.B.O. currently projects for that year.”
Think about that for a minute. If those worst-case-scenario interest rates came to pass and persisted, we’d be approaching a trillion dollars in interest payments per year. That’s what compound interest looks like when it’s working against you.....
Some people fear that the United States will lose its AAA credit-rating or even default temporarily, potentially increasing how much it costs the government to borrow money. According to the Congressional Budget Office, “…a 4-percentage-point across-the-board increase in interest rates would raise federal interest payments next year by about $100 billion; if those higher rates persisted, net interest costs in 2015 would be nearly double the roughly $460 billion that the C.B.O. currently projects for that year.”
Think about that for a minute. If those worst-case-scenario interest rates came to pass and persisted, we’d be approaching a trillion dollars in interest payments per year. That’s what compound interest looks like when it’s working against you.....
I feel the need...
Joined: May 2004
Posts: 14,957
Likes: 515
From: Motown
"The Magic Of Compounding" - The Impact Of 1% Change In Rates On Total 2022 US Debt
Sadly, this is no "magic" - this is the reality that awaits the US.....
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