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1. Beginner Course

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  1. 1. What are these cryptocurrencies?
  2. 2. Bitcoin - the story of a technological revolution
  3. 3. Satoshi Nakamoto, who is the creator of Bitcoin?
  4. 4. Vitaly Buterin – the creator of Ethereum
  5. 5. What is Blockchain, and how does it work?
  6. 6. What is an NFT token?
  7. 7. What is money?
  8. 8. Cryptocurrencies vs fiat money, which will win?
  9. 9. What is DeFi (Decentralized Finance)?
  10. 10. DeFi: opportunities, advantages and disadvantages of decentralized finance
  11. 11. What is an altcoin?
  12. 12. Stablecoins - What are they?
  13. 13. Cryptocurrency wallet - what is it?
  14. 14. Why do we talk about bull and bear markets?
  15. 15. Security in the crypto market - what rules are worth following?
  16. 16. What is the seed phrase in cryptocurrencies?
  17. 17. Dogecoin and memecoin - what are they?
  18. 18. What is a Ponzi scheme?
  19. 19. What is a Soft and Hard Fork?
  20. 20. Blockchain - examples of use
  21. 21. Is blockchain safe?
  22. 22. Smart Contracts - what are they?
  23. 23. What is Ethereum? 
  24. 24. Liquidity in the cryptocurrency market
  25. 25. What is cryptocurrency mining?
  26. 26. What is the mining difficulty?
  27. 27. Inflation and its effects on financial markets
  28. 28. What is compound interest, and how does it work?
  29. 29. Cryptocurrency wallet diversification
  30. 30. Blockchain and NFT games - how to make money on them?
  31. 31. Decentralized Apps – what are they?
  32. 32. What is Proof of Work (PoW) and what is Proof of Stake (PoS)?
  33. 33. What is Proof of Burn (PoB)?
  34. 34. What is the Proof of Authority (PoA) consensus mechanism?
  35. 35. What Are Privacy Coins and Are They Legal?
  36. 36. What is CBDC - central bank digital money?
  37. 37. What is Cryptocurrency Airdrop all about?
  38. 38. What are the types of blockchain networks?
  39. 39. Key differences between ICO, IEO and STO
  40. 40. What is IoT - the Internet of Things?
  41. 41. What is the difference between Circulating Supply and Total Supply?
  42. 42. Everything you need to know about gas fees in Ethereum!
  43. 43. The most important cryptocurrency acronyms/slang you need to know!
  44. 44. Halving Bitcoin - what is it, and how does it affect the price?
  45. 45. What is the Fear and Greed index for cryptocurrencies?
  46. 46. APR versus APY: what is the difference?
  47. 47. Snapshot from the world of cryptocurrencies - what is it?
  48. 48. Know your customer (KYC) and Anti-money laundering (AML) what are they in the cryptocurrency industry?
  49. 49. What is a whitepaper? What is its purpose, and how do you write it?
  50. 50. How do you transfer cryptocurrencies?
  51. 51. What is EURT? How does it work?
  52. 52. What is an Initial Farming Offer (IFO)?
  53. 53. What is Regenerative Finance (ReFi)?
  54. 54. Bitcoin Pizza Day
  55. 55. What Is Stagflation and Why Does It Have a Negative Impact on the Market?
  56. 56. What are decentralized DAO organizations, and how do they work? What are DAO tokens?
  57. 57. CyberPunks - the story of the most popular NFT collection in the crypto industry!
  58. 58. Michael Saylor, Self-Proclaimed Bitcoin Maximalist
  59. 59. AI blockchain - a new look into the future?
  60. 60. The Bored Ape Yacht Club (BAYC) - the story of the popular NFT collection!
  61. 61. Who is Changpeng Zhao, CEO of Binance?
  62. 62. What is blockchain network congestion, and how does it work?
  63. 63. Azuki NFT collection guide: everything you need to know about it!
  64. 64. Who Is Craig Wright, the Alleged Creator of Bitcoin?
  65. 65. What Is Bitcoin (BTC.D) Dominance?
  66. 66. What is WorldCoin? Everything you need to know about this cryptocurrency!
  67. 67. Who is Brian Armstrong - CEO of Coinbase?
  68. 68. The 10 most expensive non-fungible tokens (NFTs) ever!
  69. 69. Web3's most popular social media platforms! Will they replace the platforms we know?
  70. 70. Cryptocurrency wallets: Hot Wallet vs. Cold Wallet - key differences!
  71. 71. Gavin Wood: Blockchain Visionary and Co-Founder of Ethereum
  72. 72. The memecoin story: madness or great investment?
  73. 73. Blockchain versus databases: key differences!
  74. 74. NFT Art: The digital art revolution - history and examples!
  75. 75. Who is Galy Gensler and the SEC? How does the Securities and Exchange Commission (SEC) affect the cryptocurrency market?
  76. 76. On-chain analysis in the cryptocurrency world: Everything you need to know about It
  77. 77. What are utility tokens and what use do they have in the cryptocurrency sector?
  78. 78. Can you pass on your cryptocurrencies after death? How do you pass on a cryptocurrency inheritance?
Lesson 28 of 78
In Progress

28. What is compound interest, and how does it work?

Compound interest it’s the eighth wonder of the world, he said Albert Einstein. Over time, it helps us become rich, but at the same time it can increase our debt. Of course, if we don’t use it wisely. What it actually is and how it works is the topic of our today’s lesson.

Definition

Compound interest to reinvestment of percentage from your account. Thanks to this procedure, we earn our interest. This so-called percent of percent. We have a rather specific example of saving. It is important to consider four important factors in this case:

  1. Investment period.
  2. Interest.
  3. Interest capitalization frequency.
  4. The amount of your investment.

This type of investment is long-term. The effects are visible after many years, not from month to month. Therefore, saving on compound interest, we should start as soon as possible.

Remember that compound interest, these are not bank deposits. The interest rate is not so transparent, and in this case, the saving process takes a very long time.

How does compound interest work?

By investing a certain amount of money, after the first period, we get a bonus capitalization of interest in a given period. At this point, it is worth leaving your profit on the account and still earning money on it, then immediately consuming additional funds for worldly goods.

Interest will continue to work and automatically increase. Thanks to this, we get a larger amount because the same percentage will be charged in the bank on a higher amount.

Here is an example of operation compound interest:

We consider it when our capital is 5,000 net, with an interest rate of 5%. Time is a 3-year period with annual capitalization.

  • The first year of investment:  5,000 + 5% =  5,250.
  • The second year of investment: 5,250 + 5 =  5,512.5.
  • The third year of investment:  5,512.5 + 5% =  5,788.12.

At the end of the three-year saving period, you can decide: withdraw the profit or keep it and multiply yours even more capital

Will compound interest help me save more money?

Yes, if you start as early as possible. Assuming that we have been working in Poland for about 40 years, this is a period when we can take advantage of compound interest. Starting our adventure with this type of investing at the age of 30, we have 30 left (until retirement) when compound interest will work for us.

The later we start, the less time we have left. Of course, you can invest and save at any age. And the world doesn’t end there. In every bank, we will find a favourable offer to deposit in a savings account where the interest rate is relatively favourable.

However, let’s consider that as a young investor, he has more time to learn and absorb knowledge, and thus – to make up for his investment mistakes made in his youth in the future.

Fun fact: A great example of how compound interest works is Warren Buffett. His wealth is valued at approximately USD 115 billion. The investor has mastered the operation of compound interest to perfection – it is one of his investment methods, which has been multiplying his assets so far.

What to invest in using compound interest?

In products that capitalize interest and they pay us. For example, on the stock exchange, we can buy shares of companies that will go up very much. It is also worth considering investing in products that pay us money on an ongoing basis and start reinvesting them. Then we will take full advantage of the power of compound interest and use its full potential.

Simple interest vs. compound interest

If, after capitalizing interest, you immediately transfer it to another bank account or account, you are dealing with simple interest. Then there is no increase in the amount of your deposit, and the capitalization of interest will be charged exactly in the same amount as the amount transferred to another account. Simple interest is most often used for short-term deposits.

However, when the interest on your account increases the capital, you are dealing with compound interest. It is inherently assigned in the bank for long-term saving.

So, you can see that simple and compound interests are definitely different from each other.

Summary

By investing long-term, compound interest makes more sense. The interest on your share capital is accrued and capitalized with each subsequent period. You can see it in our example. Over time, you make more and more profit and have more and more money.