Compound interest makes a distinction from simple interest due to the reinvestment of interest factoring into the rate of return.  Compound interest is the method of calculating the rate of return by adding accumulated interest back to the principal investment, so that interest is earned on both the original principal and the interest as it accumulates.   The more frequently the interest compounds, the more interest that will be earned on a growing balance.  This simple investment building block becomes a greater factor over longer investment horizons and in higher interest rate environments.  Based on this information, it is wise to start and automatic investment fund that accumulates the earned interest as soon as possible.  In addition, since the listed CD interest rates and savings rates published by banks assume compounding of the  reinvested interest, the rate of return will change if the interest earned on the bank savings, money market or bank CD account is paid out to the account holder instead of remaining in the account.

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