How can I get compound interest?

Question

How can I get compound interest and what will it do for me financially?

Account Closed · Answer

@Reece Gaynes Become a "private lender".

You ask "what will it do for me financially?" Answer: Make you wealthy.

Brent Coombs · Answer

@Reece Gaynes, as far as I know, ALL banks are obliged to add their interest directly into your Account (usually quarterly?), and then calculate the next interest amount off each NEW total.

The problem right now is, we'll NEVER get rich based on compound interest @3% (or even less!)

$100 becomes $103 in 1 year, becomes $106.09 in year 2, which becomes $109.27 in year 3... Hardly the stuff of legend. (I'm from Melbourne too. We want "compound" to mean MORE!)

But as Account Closed alluded, if YOU set the Interest Rate at which you lend your cash, you can get compound interest at double digit returns as a "private lender", lending to those who for whatever reason can't qualify for a "normal" (low) interest rate. But, I suggest that you DON'T try to be a private Money Lender, but rather, become the type of Investor who BUYS those same type of deals that other Investors buy using private lenders. (Because, those are the same type of deals that'll get you even greater returns than you'd be getting as a private lender!)

Who's making more money right now? Banks? Or, Investors who borrow from those same Banks?

I put it to you that the only reason Banks make more ACTUAL dollars is because of VOLUME.

If you have $20k, and borrow $80k at 5%, but can net 8%/y on a property that you buy for that same $100k, sure, you have to pay back $4,000/y, but YOU make $8,000/y, which is a net return to you of $4,000/y ie. 20%! (Which WILL compound quite quickly, not even including the appreciation you'd get by only buying bargains in the first place, because you'd be putting those proceeds into buying MORE of those same type of deals, right?) Welcome to BP. All the best...

Jeff S. · Answer

Both Sam Bronfman (of Seagram's fame) and Albert Einstein are rumored to have said that compound interest is the most powerful force in the universe. Whether true of not, its effect on your wealth is undeniable and all investors should understand the time value of money.

One way to learn is to buy an HP 10Bii financial calculator or download the equivalent app here. There are many ways to learn how to use it.

Gary Johnston teaches several excellent moderately priced seminars on investing using a financial calculator, though only in the US. Helpful to anyone, every other week his website offers a calculator problem and solutions to the prior week's problem. These range from simple interest calculations to some more sophisticated investment strategies involving optioning, discounting, uneven cash flows, and the like. This is also a great way to learn about notes.

I highly recommend Gary's seminars to anyone who can get to them, but if you can't, then master the sample problems on his website and also find someone local who teaches a financial calculator class.  I know there are many YouTube videos on this. Good luck @Reece Gaynes.

Account Closed · Answer

@Cody L.

@Reece Gaynes is in Australia. Is savings at a bank compound? I don't think so. I think you have to invest in mortgages or such to receive compound. I haven't had a savings account, well I do have one, but little money in it, since there is no incentive. I average 16% interest doing "Subject To", so I haven't thought about simple interest in a very long time.

Reece Gaynes · Answer

Thank you so much Account Closed, makes a lot more sense now

David Garrison · Answer

Interest rates are pretty low right now. You should talk to a financial advisor about some low risk possibilities. If you're willing to lock money up for a year or more you're likely to find something better than current MMIA or CD rates.

Best rates you'll find are usually online banks at around 1%. Go here: http://www.bankrate.com/calculators/savings/simple...

Plug your numbers in and see what you'd earn if you just put it in a savings account.

How can I get compound interest?

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