Compound Interest: How Randy Grows His Savings Over Time
How does compound interest work in growing Randy's savings?
Randy opened an RRSP deposit account on December 1, 2008, with an initial deposit of $2300. He added $2300 on November 1, 2010, and $2300 on September 1, 2012. How much is in his account on March 1, 2016, if the deposit earns 7.7% p.a. compounded monthly?
Randy's Account Growth Over Time
Randy's account grows through compound interest, which allows the interest to be calculated on both the initial principal and the accumulated interest from previous periods.
Compound interest is a powerful tool in growing savings over time. In Randy's case, his initial deposit in 2008, along with the subsequent deposits in 2010 and 2012, accumulated interest over the years, resulting in a larger sum on March 1, 2016.
By understanding how compound interest works, Randy was able to watch his savings grow steadily over the years. This financial strategy not only helps individuals like Randy achieve their financial goals but also demonstrates the power of long-term savings and investments.
Randy's example serves as a reminder of the importance of financial planning and saving for the future. With the right strategies in place, anyone can watch their savings grow steadily over time, reaching their desired financial milestones.