Many Portuguese maintain large amounts in accounts to the order that yield little or nothing, losing opportunities for profitability. For those who choose time deposits such as savings solution, how interest rates are managed may have a significant impact on capital growth over time.
Compound interest
The concept of compound interest may be decisive to increase accumulated income. Simply put, it consists of the capitalization of interest, allowing the amounts received to be reinvested and generate new income.
Like a tree that grows and bears fruit, which in turn generate new trees, compound interest creates a cumulative effect that enhances savings growth.
In practice, many depositors choose to receive interest annually on the Order account, spending them on current expenses.
However, as they reinvest interest on a new deposit, the initial amount grows and future interest rates are increasing about higher capital, progressively increasing income.
The impact of compound interest
To illustrate the difference between capitalizing interest, you can consider a 10,000 euros deposit at a rate of 4% per year.
If interest is simply taken from the account after 25 years, accumulated capital will be substantially lower than what would be achieved with the annual reinvestment of income.
In an alternative example, an investment of 50 euros in a PPR fund with an average return of 6% over 40 years could result in a final savings of 110,000 euros, with a real investment of only 25 thousand euros.
If applied to an ETF based on the S&P 500 index, which has historically surrendered about 10% per year, the final amount could reach the 370,000 euros, demonstrating the power of interest capitalization.
Efficient savings management and knowledge of available options are fundamental to maximize financial return.
The adoption of strategies that allow us to take advantage of compound interest can represent a significant long -term difference in time deposits, as explained by.
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