Wednesday, 22 January 2014

Double Edge Sword (Compounded Interest)

This is a very good concept and practices in dealing with money / cash to get as high return as possible at as early as possible. The double edge sword focus on to save money on a savings account which give fixed annual return and to gain interest on the principle invested @ saved. On the consequent month, the money will grow and expand by the power of compounded interest (Interest plus principle on interest)

For example, for initial amount to be invest, is RM1000, at the end of the month the origin principle will gain RM100 (Assuming i = 10%pa.) Interest gain plus principle equals to RM1100. On the consequence month, add another RM1000 into the investment @ savings and the interest on the first month will be take account and calculated together with the Principal. This situation can be illustrate as follow :

Month 1 = RM1000 X 0.1 = RM100 Balance shown on statement = RM1100
Month 2 = (RM1100 + RM1000) X 0.1 = RM 210 Balance Shown on statement = RM2310.00

It means, interest gained on the original principal keep counted and growing each month.

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