- Compound interest is the process of adding interest to a principal amount and basing future interest on this new balance.
- Unlike compound interest, simple interest uses only the principal amount to calculate interest.
- While many installment loans charge simple interest, credit cards use compound interest.
- Read more coverage from How to Do Everything: Money
Compound interest can be one of the most beneficial or damaging things to your wallet. And it all depends on whether you're earning it or paying it.
When you're earning compound interest, you could end up with a far larger balance than you initially invested. But when you're being charged compound interest, you could end up paying far more than you ever borrowed.See the rest of the story at Business Insider
NOW WATCH: 9 items to avoid buying at Costco
- Who has the best cheap car insurance in Tennessee?
- I'm a financial planner, and I have a simple guideline to figure out who needs disability insurance
- 5 years ago I made $6,400 working for myself. This year, I'm on track to break $100,000 thanks to a few smart choices.