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Simple Interest.  Compounding Interest.  What's the difference?

David Crosetti of Seeking Alpha gives a great overview of compounding investment returns, and explains and why it is still one of the most valuable gifts savers have ever been given.

In contrast to simple interest, compound interest works very differently. Compound interest is the interest that an investor gets, not only on his/her original investment, but also on all of the interest that his/her investment earns over the term of the investment. Think of compound interest as being interest earned on interest.

“Compounding interest is the eighth wonder of the world.  He who understands it, earns it…he who doesn't…pays it.”  – Albert Einstein

These two charts in particular, really help sum things up:

Simple Interest                                                 Compound Interest   

Simple Interest Example       Compounding Interest Example

Read more here –  The Miracle Of Compounding: Are You Taking Advantage? | Seeking Alpha

Ron L. Brown, CFP®

Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and president of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs. Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family. Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.

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