# What is compound interest?

The phrase "Citizens, keep your money in the savings bank!" long time does not cause sarcastic smirks. For most people, a bank deposit is a familiar way of placing and increasing funds. Compound or capitalized interest allows you to increase the income on the deposit.

## What is compound interest

The main advantage of this method is a profitable investment of money - a bank deposit at compound interest pleasantly surprises at the end of the contract. Additional profit is formed due to the accrual of interest deductions, which are added to the deposit amount.

- The advantage of compound interest comes from capitalization. That is, the accrual is made on the body of the deposit and on the amount of interest accrued over the previous period. According to the agreement, capitalization can take place every month, quarter or year.
- In comparison, when using simple interest, the interest rate remains fixed. The deposit amount for interest calculation does not include accrued interest.

Thus, when using compound interest, the profit increases every year, and simple interest guarantees the same profit.

Factors affecting the calculation of compound interest:

- Deposit amount.
- Size and frequency of replenishment.
- Interest rate.
- Investment period.

## Interesting facts

- Albert Einstein is credited with saying, "Compound interest is the greatest mathematical discovery of all time."
- In 1791, Benjamin Franklin bequeathed $5,000 each to the foundations of Philadelphia and Boston. The money was kept in the bank, the cities could get it in 100 and 200 years. A hundred years later, a small amount increased to 500 thousand. And a century later, the townspeople received a generous gift - $ 20 billion.

This is a good example of how compound interest works. The longer compound interest is accrued on the deposit, the more profitable the investment. The compound interest calculator will help you figure out if this condition of investing money suits you and how much you can claim.