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How To Shift Between Simple And Compound Interest Rates


wealthymattersNow that banks and other financial institutions are having to compete to raise deposits from the public,quite a few are resorting to a bit of window dressing.They quote annual yields,annualized returns or simple interest rates instead of compound interest rates for multi-year deposits.

Now a simple interest rate looks more impressive than a compound interest rate over longer periods of time ;so do check what sort of interest the seller is offering before locking your money away at a rate that looks great.

Here is a simple step-by-step way  that you can use to mentally estimate the compound interest rate that is equal to any simple interest rate. Read more of this post

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Bank Fixed Deposits


wealthymatters.comA bank FD is a savings instrument where you deposit an amount with the bank for a fixed duration.You earn a fixed rate of interest on this investment. The interest rate is fixed at the time of the investment – even if interest rates change during the tenure of the FD, the interest that you earn on your FD remains fixed. A FD is also called a Term Deposit at times, as it is an investment for a pre-defined term.

All banks have their own rules on minimum deposits.Most nationalized banks will start a FD with just Rs.1000.

The tenure of a FD can be anywhere from 15 days to 10 years.The rate of interest offered on a FD depends on various parameters: the prevailing interest rates, the duration of the FD, the amount of the FD, your age, etc.Usually, the longer the tenure of the FD, the higher is the interest rate.However,when the economy has a liquidity crunch,banks do offer higher rates on short-term deposits too.They also come out with Special Term Deposits of more unusual tenures such as 555 days, 1001 days etc.Most banks offer a different rate of interest on FDs of more than a certain amount, usually Rs. 15 Lakhs.Also, most banks offer an extra 0.5% per annum to Senior Citizens.Some banks also offer different rates for Trusts and Societies. Read more of this post

The Would-be Millionaire’s Pledge


wealthymatters.comBy starting early, and socking away small sums in conservative investments on a regular basis, a person can get pretty far ahead in life.The important thing is to start as early as possible to give compounding a chance to work it’s magic.(For more on how compound interest works,refer to this post:https://wealthymatters.com/2011/01/24/compound-interest/. And for an estimate of just how small an amount you need to put aside on a regular basis to become a millionaire,check out the calculator here:https://wealthymatters.com/2011/01/26/want-to-be-a-millionaire-calculator/)

So if you’d be a millionaire later in life why not take the following pledge and get started?

  1. I will pay myself  first always.No excuses.
  2. I will take advantage of all low-cost government,employer,and other private group benefit schemes .
  3. I will stick to the budget and goals I set for myself.
  4. I will spend less than I make each year. I will not get into unproductive debt.
  5. I will make my credit-cards and other sources of free money earn for me.
  6. I will read more books on personal finance and implement the wealth-building strategies I learn.
  7. I will shop around , consider alternatives and negotiate before making purchases.Iwill time purchases to get more for my money.I will not saddle myself with unnecessary crap even if it’s dirt cheap.

The above pledge is modelled on the basis of the original here : http://postgradagenda.wordpress.com/2011/01/27/how-to-become-a-millionaire-sort-of/ .I really wish I had this level of awareness so early in my life.It would have brought more focus to my earlier efforts.

 

Compound Interest


wealthymatters.comWe all pick up some pretty important stuff in primary school but it’s doubtful if we really appreciate their importance at the time.Compound interest is one such thing.For many people  it’s a formula to be memorized to pass a few math tests only to be forgotten or at least be pushed back to the recesses of their minds along with all the rest of the facts memorized in childhood.

To refresh memories, compound interest is the type of interest calculation where periodic interests accrued are not paid out but retained and the accrued interests earns interest . The formula for calculating compound interest is:

A = P\left(1 + \frac{r}{n}\right)^{nt}

Where,

  • A = final amount
  • P = principal amount (initial investment)
  • r = annual nominal interest rate (as a decimal)
  • n = number of times the interest is compounded per year
  • t = number of years Read more of this post
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