In this scenario, interest earned is not reinvested. Simple interest is when interest is gained only on the principal amount. It's important to understand how compound interest works so you can find a balance between paying down debt and investing money.

Interest rates on credit card and other debts tend to be high, which means that the amount owed can compound quickly. The amount due increases as the interest grows on top of both the initial amount borrowed and accrued interest.Ĭompound interest is often calculated on investments such as retirement and education savings, along with money owed, like credit card debt. However, when you have debt, compound interest can work against you. When saving and investing, this means that your wealth grows by earning investment returns on your initial balance and then reinvesting the returns. It is the interest earned on both the initial sum combined with interest earned on already accrued returns. Compound interest is often referred to as “interest on interest” because interest accrued is reinvested or compounded along with your principal balance. It is a powerful tool that can work in your favor when saving, or prolong repayment for debts. Compound interest is the formal name for the snowball effect in finance, where an initial amount grows upon itself and gains more and more momentum over time.

Daily interest on 100 million dollars