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Compounding Can Work For You Or Against You

Compounding is where the positive or negative return is dependent upon both the starting amount, or principle, as well as the return. Compounding works in your favor for positive returns in savings and investment accounts. Here the amount received is dependent on the total value of the account - including previous returns - and creates a positive growth function. Compounding works against you for credit cards where the amount you owe is dependent upon the total debt of the account - including previous charges and creates a negative growth function.

Credit cards are useful but charge exorbitant interest rates that work against your long term goals if you carry a balance.



The information presented here is the opinion of the author and may quickly become outdated and is subject to change without notice. All material presented in this article are compiled from sources believed to be reliable, however accuracy cannot be guaranteed. No person should make an investment decision in reliance on the information presented here.

The information presented here is distributed for education purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or participate in any particular trading strategy.

Performance data showing past performance results is no guarantee of future returns.

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