See the image above? It's no photoshop. Einstein believed that compound interest is man's greatest invention.
And I love the way Wikipedia explains it - Compound interest arises when interest is added to the principal of a deposit or loan, so that, from that moment on, the interest that has been added also earns interest.
But what is so special about compound interest, that made Albert Einstein call it the 8th wonder of the world?
I'm sure you remember the interest formula we all learned in primary school, that Interest (I) is equal to Principal (P) x Rate (R) x Time (T).
Rate in percentage.
But if you've been applying that in the real world, you are making a BIG mistake. The formula above is for Simple Interest, and the one thing that doesn't exist in the Finance world is the word - simple.
The interest rates you see in the finance world are all compound interest. Your savings account interest rate is compound interest. The loan you get from a bank is at a compound interest rate. Even your share bonuses are compounded.
Here is the very quote by Einstein - “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”
And we all know that Albert Einstein does not exaggerate. What he said is as true as his Theory of Relativity.
Compound Interest is a powerful tool. It will work wonders for you if you understand it and can be easily used against you if you don't understand it.
Here is the real formula to use when calculating interest -