Interest rate is a term in economics and finance that refers to how much return you can get from an investment if you also take into account the future growth of your investment.
Let's say you invest DKK 1,000 in a given company.
After 1 year, the DKK 1,000 will have grown to DKK 1,100. In other words, a growth of 10% corresponding to a gain of 100 kr.
After 2 years, the investment increases 10% again - but this time it's 10% of £1,100 instead of just £1,000.
This means that your investment has grown to £1,210.
As you can see, the first year you had a win of 100 kr. - but the second year the gain is 110 kr. (i.e. the difference between 1,100 kr. and 1,210 kr.).
The extra £10 you earned in profit in the second year compared to the first year is due to the compound interest effect.
We can project this effect year by year. See the table below, where we assume that each year there will be a 10% gain (although this is not guaranteed in the real world).
So, after 9 years, you will have earned approximately DKK 458 based on the compound interest effect alone.
Without compound interest, your gain would be DKK 900, where DKK 458 is more than 50% of this gain. It is therefore not insignificant to take interest into account.
We've now looked at a practical example of compound interest, but you may also be interested in the theoretical background of the effect.
Here is the formula for the compound interest effect:
A = P(1 + r/n)nt
To find the number of years in decimal form, simply take the number of months and divide by 12. This way, for example, half a year would be 0.5 and 15 months would be 1.25.
With the formula, you are now able to calculate the compound interest on your investment or savings.
In the financial world, there are many ways to invest your money. For example, you can choose to invest in shares, where your financial gain is the given return that comes with the share.
However, the return is always relatively uncertain and depends entirely on the performance of the given stock.
In contrast, you can also choose to invest in real estate projects in the form of crowdlending. Here you lend your money, along with a pool of other investors, to real estate developers who use the money to finance the construction of a property.
Just like a bank loan, the real estate developer agrees to pay back the money with interest. This could be an interest rate of 12% p.a. - sound too good to be true?
It isn't. In fact, it's a very common interest rate - check out this building project we're currently offering here at Fundbricks. You can also see our other projects here, where the interest rate is typically between 9-13% p.a.
We follow the money laundering guidelines.
Select the amount you want to lend for each property project.
Receive cash repayment of your loan as well as returns when the property project is completed.
WHAT ARE YOU WAITING FOR?
Historical returns are no guarantee of future returns. The money you lend to projects can therefore increase or decrease in value and there is no guarantee that you will get back the full amount lent.
READ MORE
