 on accumulating over the years.
- Increased income in less time- In comparison to simple interest, compound interest is beneficial if you want to gain more income in less time. Since you get an additional interest on both the principal and the amount of interest, your income increases rapidly. Therefore, if you want to gain more in a short amount of time, you should go for a compounded rate of interest rather than simple interest.
- Money keeps growing if you invest it for long periods- If you invest your money at a simple interest rate, it takes years to get it doubled. However, if you invest it at a compounded rate of interest, the money gets doubled sooner. The majority of the people invest their money as fixed deposits in banks for 5 years, 10 years, or even more than that. The interest on your principal for all these years gets accumulated and turns into a huge sum of money. The additional interest on the interest also keeps on growing for years. At the time of maturity, you get almost double the amount of money than your principal amount.
You can invest for a short period too, such as for 2 or 3 years, but it will give you less interest, and your money will not increase with as much speed as it does during a long period of investment. The longer your period of investment is, the more your wealth will increase.
If you want lump-sum money- If you have one bank account, it gets difficult to manage your savings and expenses. To buy an expensive thing such as gold or a car, a lot of people pay the money in installments. Some money as a downpayment is still required. But, how can you make savings if you keep on spending the money? Therefore, it is advisable to invest a fixed amount of money, such as 5,000 rupees, as a recurring deposit in a bank account for some years. At the time of maturity, you will get lump-sum money that you can use to make a down payment or make another investment. People also deposit a large amount of money in banks as fixed deposits. You again compound interest for years on the fixed deposit sum.
Compound interest is an interesting maths topic that can be applied to daily use. It also provides you with benefits. To learn about more such topics in-depth and to apply Commercial Math to everyday life with Cuemath, you can go through our website.
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