Compounding Interest Monthly

Effects on borrower in decision making process – If you are opening a credit card account with a monthly schedule for compounding interest; you have to understand that compounding interest on a monthly basis is how the lender or credit company is making their money. When you spend money and don’t pay off the balance by the monthly due date, interest is added and becomes part of the new balance. Then as you add to that balance, more interest is compounded on the balance as well as the previous interest charged.

Effects on lender in decision making process – On the flip side of the coin, you may be investing. Let’s say you invest 10 dollars in a savings account every day. If that savings account is the greatest savings account in the world, it will earn 10% each month for 1 year. You will earn 10% on your initial $10 in month one. That additional $1 dollar will become principle balance and will gain interest in month 2 and so on and will continue compounding.

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