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TimeValue Software Blog

Simple Interest versus Compound Interest on an Investment

By Martel Pellerin

The magic of compounding can work to your advantage when it comes to your investments and can be a potent factor in wealth creation. While simple and compound interest are basic financial concepts, becoming thoroughly familiar with them will help you make better decisions when taking out a loan or making an investment, which may save you thousands of dollars over the long term. When investing, compounding is critical. You'll start earning interest on your initial deposit and you'll earn interest on the interest you just earned.

For the most part, nowadays all savings vehicles use compound interest while many loans use simple interest. When looking at savings products, be sure to pay attention to how frequently the interest compounds. You’ll see things like daily, monthly, and annually. The more frequent the compounding, the quicker your money will grow. Ideally you would want compound interest to compound daily. That is what the IRS does.

TValue software offers 13 different compound methods so you have the flexibility to calculate interest for any situation. TValue can be an excellent solution to do long term financial planning, future value calculations, projections, and different kinds of “what if” scenarios. It can pretty much do any calculation you need.

Albert Einstein loved compound interest. History's most famous scientist is said to have once described compound interest as “the eighth wonder of the world”. “He who understands it, earns it; he who doesn't, pays it.”