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BasicEconomics1 min

Compound interest (capitalisation) means that interest is paid not only on the original amount but also on interest that has already been added.

In plain words

As a result money grows faster than with simple interest, and the longer the period, the bigger the difference. Banks add interest monthly or quarterly to the deposit balance, so the effective annual rate is higher than the nominal one. The formula is S = P × (1 + r / n)^(n × t), where P is the starting amount, r the annual rate, n the number of compounding periods a year and t the years. The other side of it: on loans, compounding increases the debt.

Example. UAH 1,000 at 10% a year: with simple interest you have UAH 1,100 after a year, and with monthly compounding 1,000 × (1 + 0.10 / 12)^12 ≈ UAH 1,104.71 (an illustrative example).

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Word of the dayCold walletIntermediate

A cold wallet is a way of keeping cryptocurrency keys offline, without a permanent internet connection: a hardware device or a seed phrase written on paper or metal.

Example. You buy a hardware wallet, write the seed phrase on paper and keep it in a safe, while the money for everyday spending stays in a mobile wallet.

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