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MI Rewind: Infinite Banking with Chris Naugle
The Intrinsic Value Podcast - The Investor’s Podcast Network
Understanding the Difference between Interest Rates and Compound Interest
The difference between interest rates and compound interest is often misunderstood. When borrowing money at 6% and earning 4% in a savings account, it may seem like a loss, but the reality is different. Compound interest allows the initial amount to grow at an increasing rate, while simple interest keeps the growth constant. As a result, despite paying 6% and earning 4%, the increasing nature of compound interest can eventually lead to earning more than the interest paid, especially with a declining balance.
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