Compound interest is the holy grail of investments.
The reason for this, is that it pays investors interest, not just on the initial investment that they make, but also on the interest that is accrued.
For example, compound interest of 0.2% per day, would pay the same amount of interest on the new balance of the account every day.
The effect of compound interest is better understood when trying out a compound interest calculator. You can find one for example here, and put different sums, interest rates and timelines – you will see how powerful compound interest really is.
So, with this being a desirable investment to aim for, we have looked more closely at some of the best ways to earn compound interest on your investment.
Certificate of Deposit
This is a great way to make a safe investment, as it is insured at a federal level. However, the investment must remain in place until the end of the investment period, otherwise, it will not reach maturity.
Property is a great way to make passive income on your money. While it isn’t strictly compound interest, it does create a consistent dividend yield on your investment over time. It can be one of the best investments in terms of long-term earnings.
However, there are some drawbacks to investing in property. Firstly, the property will require management. This will either take time, or it will eat into your return through a management company.
Secondly, property values are volatile, so the value of your investment could fall if the property market drops. This is only an issue if you intend to sell your property, because if you intend to keep it long term, then this won’t be much of an issue.
If you don’t have enough to invest in property directly, then you can use an investment trust. This pools together the money of multiple investors to invest in property.
As such, some of the dividend yield is taken in management fees, but it is a good way for smaller scale investors to create passive income.
High Interest Savings Accounts
These are accounts that pay out a higher interest rate than other savings accounts. Because the interest rate is higher than other accounts, they do require a larger initial deposit.
The interest that it generates will continue to be compounded over time. This makes the overall investment much better than a standard interest account.
There is the risk that inflation may increase above the interest level, but generally speaking, the investment that’s offered here is a solid one.
There are a lot of different ways to invest, and create compound interest. It’s up to you to look at what is the best way to help you. Whether you want guaranteed interest on your investment, the potential for higher earnings, or the ability for your investment value to increase, there are options out there.
Of course, it should be noted, that the higher the potential reward, the higher the level of risk that is involved.
Therefore, it’s important to make sure that you go over every piece of information related to your investment before carrying it out. This will allow you to be fully informed, and from there, you can choose the best one for your needs.