First, we need to understand how compound interest works. It's how your money grows! Getting this will help you understand the best way to save and invest. Yes, it's math... But, not the math of text books... This is the real stuff, and it's very simple.
Let's invest $1.00 in an account that pays 12% interest each year... and let's say that the account is compounded yearly.
|Compounded yearly means that, at the end|
of each year, they add the yearly interest (12%)
to your account. (That's 12% of the amount in
What if we make the same investment, but it's compounded semi-annually?
|Compounded semi-annually (twice a year)|
means that, at the end of June, they add 6%
of the amount in your account... and at the
end of December, they add another 6%.