Financial Freedom 101

Compound interest is the concept of investing in something like a CD (certificate of deposit) or a bond. These two both have fixed rates and a fixed sell date (called maturity date). This means the CD or Bond is worth its max on that date and you can acquire your money at that time. So how does this work…

You own 10 CD’s at $100 each with a 4% fixed rate with a 20-year maturity date
After the first year, you receive…
$100 x .04 = $4 per CD
10 CD’s x $4 = $40 Total Interest

After one year your CD’s have increased from $100 each to $140. For the second year…
$140 x .04 = $5.6 per CD
10 CD’s x $5.6 = $56 Total Interest

After two years your CD’s have increased from $100 each to $196

This is good, don’t get me wrong here CD’s can and will make you money. With a bond or CD, you are guaranteed to receive your growth money. Here you are earning interest at an exponential rate. Although you have to wait 20 years until the maturity date to receive your money back. This a very safe way to invest your money.