Certain financial products – such as bonds, funds, or some real estate investments – offer the option to do so by working with compound interest, an investment method that is often underestimated but can prove extremely effective in a long-term perspective. Especially if the announced return remains stable. But before that, it is important to understand what compound interest is and how it works.

Compound Interest: Explanation

Although the vast majority of people are familiar with the idea of interest, compound interest is often seen as a complex notion when, in fact, it is simply the accumulation of interest: interest calculated on the initial capital to which previously earned interest has been added. In other words, compound interest allows for the generation of interest on interest. A process that may seem insignificant in the short term but can, over time, allow for gains to be accumulated exponentially.