Investing Money with Compound Interest Calculator in Mind

Albert Einstein is widely rumored to have once said that “the most powerful force in the universe is compound interest.”


What is compound interest?
The term compound interest, also called as the 8th wonder of the World, is a standard word in economics and finance. It is the process of adding interest to the initial amount of an investment, and from then on earning further interest on this new amount. This is distinct from simple interest, in which the rate is applied once to the initial amount and then multiplied by the term of the investment.

Compound interest is a key way to grow savings. It works when interest is paid on interest. This leads to exponential growth over time.

In more detail, interest compounds when money invested earns interest and then – when the original sum and the original interest are unspent – interest in the next period is paid on both. Over many years, the pattern is repeated, growing the original investment at an increasingly rapid rate.


Compound Interest  Formula
Where the interest is compounded once a year then the Compound Interest Formula is: A = P(1 + R)Y whereby:

• A = the accumulated amount i.e. how much money you’ve accumulated after n years, including interest.
• P = the principal (the money you start with, your first deposit)
• R = the rate of interest (AER) as a decimal (8% means =.08)
• Y = the number of years you leave it on deposit

The Two Levers of Compound Interest: Frequency & Time
1. Frequency (or Interval)
In the above example we are simply compounding annually. But some savings and investments may compound quarterly or even monthly. So, it’s important to find this out in advance from the financial institution or broker. The frequency with which returns are compounded is particularly important when investing in Bonds. The following shows the difference in how the formula is calculated.

Quarterly Compounding = P (1 + R/4)4Monthly Compounding = P (1 + R/12)12

The more frequent the interval of compounding is, the greater the impact on compound growth. However, it’s worth noting that although frequency is an important lever in the impact of compounding on the future value of a savings or investment vehicle, it is not as impactful as the term i.e. length of time (plus the compounding frequency “lever” is subject to the law of diminishing returns over time).


2. Time (i.e. the Term)
Compounding exerts its most dramatic effect (for a given interest rate) when the term is extended. In other words, the longer an amount is subject to compounding, the greater the effect.

The secret to reaping the benefits of compound interest is:

• Saving and/or Investing a regular amount of money each month.
• Leaving you money invested for the long-term.
• Reinvesting your gains (interest), again and again.

How to Calculate Compound Interest
Calculating compound interest is not as straight forward as simple interest, although it is not particularly difficult.

In order to make the calculation it is necessary to know both the periodic rate of interest and the compounding period. Given these two facts it is possible to determine the return on investment over a given period, as well as a nominal annual rate and annual percentage rate (APR), two means of comparing investments offering different compounding periods.


Compound Interest Calculator
Compound interest calculator is the system that calculates the charges or amount to be paid on the original amount, plus the amount accumulated through the charges gained.

If you hate to show your Mathematical skills, online calculators are available in your aid. The calculator is easy to use and available for all of us. Just visit TutorVista, one of the best compound interest calculator online.

Certainly, compounding money is the fastest and easiest way to become financially secure. It allows you to get rich slowly over time but you can speed up this process and get rich quicker by pulling on the two levers of frequency and time. Of course, maximizing your interest rate by choosing the right investment vehicle in the first instance is also a big factor. However, the key take-home message in all of this is, leaving aside interest rate, the amount of capital (principal) you start with is not nearly as important as time i.e. getting started early.

But here’s a reminder, even if compound interest is a really marvelous invention, it can also works to the opposite. When you invest, it works for you. But when you borrow, it works against you!

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Online Investing Opportunity for People With Little Time, Knowledge, or Money to Get Into Stocks

For people looking for online investing opportunity but with little time, little knowledge, or little money to get into investing bandwagon, here’s a great opportunity from CitisecOnline (COL). The number one online stock brokerage firm in the Philippines offers COL Easy Investment Program. The purpose of this investment program is to minimize risk and maximize earning potential for investors in the stock market over several years. It encourages investing a fixed amount of money at regular increment over an extended period of time, thus enabling investors to purchase more shares when prices are low and buy less when prices are high.

With the investment program, investors can make their savings multiply exponentially by regularly allotting as low as P5,000 to purchase blue chips or shares in companies perceived to be stable and to have a good performance record.

The program offers the investor to choose from a list of stocks preselected by COL’s analyst.  Among the stocks are those of top companies like Philippine Long Distance Telephone Co. (PLDT), SM Prime Holdings Inc.,  Ayala Land Inc., Jollibee Foods Corporation, Manila Water Co., and Bank of the Philippine Islands.
COL’s services being online, the account holder can execute buy-and-sell orders without the hassle of getting through to a broker every time, unlike in the traditional stock market. Transparent investment processes are ensured at all time because investors can monitor their transactions and stocks anytime from anywhere.

The return on investment from COL Easy Investment Program will be better in the long term.  This is a great investment vehicle for people who want to start saving money for retirement, or for those who have long-term goal.

As a personal wealth-building tool and an ideal way to build a retirement fund, the investment program  effectively reduces volatility in any portfolio as the risks of investing in the market diminish over time.  COL Easy Investment Program is an ideal entry point to the stock market for it uses the dollar cost averaging or peso cost averaging method that involves investing a set of amount at regular intervals over a long period of time to take advantage of the rises and falls in the investment prices. Though, this is not a perfect investment for people who want to invest but not willing to wait three to five years for their money to grow.

The good thing of the COL Easy Investment Program is that it takes the guesswork out of stock investment because the online brokerage firm basically suggest the right stocks and investment vehicles for investors. Investors only have to figure out how much disposable income they can afford to invest for the long term. And because the fund basically shield investors from the market volatility, the return on investment will be bigger in the long run.


How to Start Investing Online with CitisecOnline?
Signing up for CitisecOnline COL Easy Investment Program takes only four easy steps:

• Sign up for a COL account. 
• Download the forms are www.citiseconline.com/easy
• Decide on the fixed amount and schedule of your payments.
• Choose from the prescreened blue-chip stocks from the list.
• Start tracking your investments through the internet by logging on to your COL account.

For new or prospective investors who wants to familiarize themselves with the stock market trading, CitisecOnline conducts monthly training seminars that seek to educate people on the basics of stock investment and to promote the idea of investing money on staggered basis. The seminar schedules are posted on COL’s website, www.citiseconline.com.

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