How compound interest works

How compound interest works

This is a really important issue - a core building block of everything to do with saving and borrowing. So hopefully we can explain it clearly.

Suppose you had $1,000 in a savings account which paid 10% annual interest after tax. After year one you'd have $1,000 plus £100 interest (10% of $1,000), a total of $1,100. After year two, you'd earn another £100 interest (the interest on the original $1,000), plus a further $10 of interest earned on the $100 interest from the first year. So now you'd have a total of $210.
By year three, you'd be earning interest on the interest from year two, and interest on the interest on the interest from year one (gulp). Basically, that's what compounding is all about.

By year three, you'd be earning interest on the interest from year two, and interest on the interest on the interest from year one (gulp). Basically, that's what compounding is all about.

A graph will make this all clear:

Feel free to contact us to learn more about smart savings at high annual rates. Our email is
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USA bank CD rates - all these rates look like a huge scam...

Isn't it a scam? Banks decieve silly americans...

National Highest Yield MMA and Savings Accounts
http://www.bankrate.com/funnel/savings/savings-results.aspx?prods=34

$10K MMA & Savings

American Bank
$10K MMA
   
0.15%  Fri Mar 29
   
Intro rate: 0.15%
Intro months: 0
Rate post intro: 0.15%
Compounded daily
   
To open: $10,000
To avoid fees: $1,000
Monthly fees: $5.00
Check writing: Yes

OMG... americans have to invest $10,000 to earn miserable 0.15% per year and make $150 annually... This $#!T is called one of the NATIONAL HIGHEST RATES!!!
Is it worth to invest money at an interest rate that will not beat the  inflation? NO. :)