What is the difference between the compounded daily and compounded annually?
in terms of a CD account, my CD account is compounded daily and when I do that http://www.bankrate.com/calculators/savings/bank-cd-calculator.aspx site to calculate how much money i have on the due date I've realized that their more money when interest compounded daily and compounded annually. So what's the difference?
There is a big difference when you consider the value end. Basically, the interest is added daily instead of annually. The formula they are using is v = p * (1 + r) ^ t p is known as the principle and the original amount you put in. V is the value in the final time t the number of periods of time spent. r is the interest rate you have to remember to adjust the period of time you are using. For example, a 10% annual rate would be (10/12)% per month since there are 12 months in a year. Therefore, the R will be smaller, but the t will be much higher since there are 12 times the number of periods of time passing. With the extra interest is added sooner you'll get more money faster than the interest for the next period applies to a larger amount of money. If this hand work is evident, but explains that it may be a little hard, without working a full example.
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