What Are the Benefits of Compound Interest?
As a mortgage broker, clients will oftentimes ask for your opinion and assistance on financial components that they may not have a great understanding of, like compound interest. When assisting clients with compound interest, it is essential to have a firm understanding of the benefits and disadvantages of compound interest.
Compound interest is a type of interest that an account holder earns through placing an initial deposit and receiving returned interest that multiples over the years. There are multiple benefits your clients can receive from compound interest, including the following examples:
- The potential ability for a client to make money on an initial deposit and the interest that deposit accumulated
- The ability to increase their funds quickly depends on the type of compound interest account and the interest rates
- The ability to reinvest the returns make on investments or properties through the compound interest accumulated
There are a wide variety of account types that are eligible to receive compound interest, including the following examples:
- Certificates of deposit (CDs)
- Various types of savings accounts
- Real estate investment trusts
- Bond funds and bonds
- Dividend stocks
- Money market accounts
The success of a compound interest account largely depends on the established interest rate. Low-interest rates can result in a client not generating a returned profit and potentially losing out on funds if the account is not properly monitored.
Individuals interested in learning more about compound interest and how they can benefit from it should research the various establishments and reach out to inquire about their policies and requirements.