I have written several articles about compound interest. I'll explain it to you intuitively this time.

First of all, we must distinguish between simple interest and compound interest.

Illustrate 3354 with concrete examples.

The principal is 6,543,800 yuan, and the interest is 654.38+ 00%. The sum of annual principal and interest is

Thus simplifying the formula:

Among them,

FV is the final sum of principal and interest;

PV is the initial principal;

N is time;

I is the rate of return

In the first table just now, we saw the income of five years, and the difference was not big. However, Duoduo has always stressed to everyone that our financial thinking should not be limited to the present, but should face the future, which may be ten years, twenty years or even thirty years. See the result 3354.

To be more intuitive, you can look at figure 3354.

The great power of compound interest is inseparable from the time effect.

As time goes by, the gap will get bigger and bigger, so the sooner you start managing your finances, the better.

02

There is an interesting 72 rule about compound interest. You can learn about it.

Divide 72 by the annualized rate of return, and the number you get is the number of years that your assets have doubled.

The advantage of this formula is that it can be pushed by ten, for example, you,

.

But if the rate of return is too wide, too high or too low, this law will fail.

03

Which is simple interest and which is compound interest in financial management in life?

Bank deposit is simple interest.

For example, if the interest rate of a bank's three-year deposit is 3% and the deposit is 100000 yuan, the sum of the three-year principal and interest is:

0103%103%103% =109,000 yuan.

Savings bonds are simple interest.

For example, if the coupon rate of a 3-year savings bond is 4% per year and the deposit is 100000 yuan, the total principal and interest of the 3-year savings bond is:

0 1 10 4% 10 4% 10 4%= 1 12,000

Most bank wealth management products are also relatively simple.

Relatively speaking, we prefer to invest in compound interest products.

For example, most money funds compound interest on a monthly basis, that is, interest is calculated once a year 12, for example, once a month, then the principal from February is the sum of principal and interest of 65438+ 10.

A cargo base has an annualized income of 3% on the 7th and a deposit of 6.5438+million, so the sum of monthly interest and compound interest after three years is 6.5438+0.094 million;

The annualized income of the other party's cargo base on the 7th is 4%, and the deposit is 6,543,800 yuan, so the sum of monthly interest and compound interest after three years is 6,543.8+0,654.38+0,270 yuan.

I can't see much difference in a short time. If you lengthen the timeline, you will know the difference immediately.

Unfortunately, we can't guarantee that the money fund will always have an annualized income of 3% for 7 days, and the bank deposit interest rate is the same.

After the bank deposit expires every three years, if the principal and interest are reinvested manually, the compound interest effect can be increased. )

As mentioned above, from the current financial market, only annuity insurance can guarantee interest rates.

Only annuity insurance can lock in decades of income in advance, and it is still compound interest income.

No matter how the macro market changes, no matter whether the insurance company will sell in the future, the income will be locked and guaranteed at the moment when the contract is signed. Generally, the longer you live, the higher the annualized rate of return will be.

This is the unique advantage of annuity insurance.

But most annuity insurance can't be collected until a certain time, which is its disadvantage: low liquidity.

Related question and answer: What does the annual interest rate mean? Annualized interest rate refers to the interest rate discounted to the whole year through the inherent rate of return of products. The annualized interest rate of the loan shall be calculated according to the ratio of all loan fees charged to the borrower to the actually occupied loan principal, and converted into annualized form. The annualized interest rate of the loan can be calculated by compound interest or simple interest method, among which, if the simple interest calculation method is adopted, it should be explained that it is simple interest. Simple interest means that no matter how long the deposit period of the fund is, only the interest of the principal is charged, and the interest of previous periods is not charged in the next interest period. Simple interest: Simple interest refers to the interest-bearing method that only the fund principal is calculated in the next interest-bearing period, regardless of the deposit term, and the interest in the previous period is not calculated. Symbol of simple interest When calculating simple interest, the following symbols are often used: p- principal, also known as initial amount or present value; I- interest rate, usually refers to the ratio of annual interest to principal; I- interest; F- the sum of principal and interest, also known as the sum or final value of principal and interest; N-the number of interest periods, usually in years. The calculation formula of simple interest (I)= principal (P)× interest rate (i)× number of interest-bearing periods (n) When calculating interest, unless otherwise specified, the interest rates given refer to the annual interest rate. Less than one year's interest, one year is equal to 360 days. According to people's use requirements, the calculation of simple interest can be divided into final value and present value. Calculation of the final value of simple interest The final value of simple interest is the sum of the principal and interest of a certain fund at a certain point in the future calculated according to simple interest method. The formula for calculating the final value of simple interest is: F=P+P×i×n =P×( 1+i×n) Calculation of the present value of simple interest In real economic life, it is sometimes necessary to determine its present value according to the final value, that is, the present value. The formula for calculating the present value of simple interest is: P=F-I=F-P×i×n=F/( 1+i×n) annual interest rate and annualized interest rate * * * Calculate the income generated by wealth management products in one year with the same annual interest rate and annualized income. The annual interest rate and annualized income have different interest-bearing methods and depreciation rates at different time points. The annual interest rate is calculated on an annual basis. The annualized interest rate may be 1 day, 1 week to 365 days, which can be converted into one-year interest. Influencing factors Central bank's policy Generally speaking, when the central bank expands the money supply, the total supply in loanable funds will increase, the supply exceeds demand, and the natural interest rate will decrease accordingly; On the contrary, the central bank implements a tight monetary policy, reducing the money supply, so that loanable funds's demand exceeds supply, and interest rates will rise accordingly. Price level Market interest rate is the sum of real interest rate and inflation rate. When the price level rises, the market interest rate also rises accordingly, otherwise the real interest rate may be negative. At the same time, due to rising prices, the public's willingness to deposit will decrease, while the loan demand of industrial and commercial enterprises will increase. The imbalance between deposit and loan caused by loan demand exceeding loan supply will inevitably lead to an increase in interest rates. Stock and bond markets If the securities market is on the rise, the market interest rate will rise; On the contrary, interest rates are relatively low. Changes in a country's economic parameters, especially changes in exchange rates and interest rates, will also affect interest rate fluctuations in other countries. Naturally, the rise and fall of the international securities market will also bring risks to the interest rates faced by international banking business. Interest rate changes calculated on an annual basis. The annual interest rate is expressed as a percentage of the principal. Unit: Annual interest rate% The People's Bank of China has strengthened the use of interest rate instruments. Interest rate adjustment is frequent year by year, the interest rate regulation mode is more flexible, and the regulation mechanism is becoming more and more perfect. With the gradual advancement of interest rate marketization reform, interest rate policy, as one of the main means of monetary policy, will gradually change from direct regulation to indirect regulation. As an important economic lever, interest rate will play a more important role in the national macro-control system.