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What is compound interest?

To read:
2 minutes
17th February 2020

Compound interest (or compounding interest) is interest calculated on the initial principal, including all of the accumulated interest of previous periods of a deposit or loan.

Compound interest is literally, “interest on interest”.

Why is it so valuable to crypto Investors?

The longer you save, the more interest you will earn on your initial investment. And the more you add over time, the higher your potential long-term earnings can be.

How does it work?

Compound interest comes into play when you don't pull out your initial investment, but instead reinvest it all.

As soon as you begin saving your cryptocurrency, it will compound on a daily, weekly or monthly basis. The higher the compounding frequency, the better. For example, at the end of the first month, an initial deposit of 1 Bitcoin would grow to 1.005 BTC.

In the second month, you now earn interest on 1.005 BTC, increasing the amount of interest you will earn going forward.

This process repeats itself over and over. The power of compound interest increases with the amount you provide into the account over time.

Where can I earn compound interest on my crypto investment?

Bitcoin and Ethereum got their first interest-bearing accounts in March this year, after the New York-based cryptocurrency lending startup BlockFi launched them, paying 6.2% interest on deposits and backed by the Winklevoss twins' Gemini exchange.

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