I was always naive with interest (interest in banks dummy, not like in "vested interest"). You see, for the longest time, I thought it was calculated monthly. Silly torwch you say, it
is calculated monthly. No, I thought that if you had a rate of 2% and a balance of $1000, you would get $20 the first month, $20.40 the next month, etc. I quickly went off, did some clever things with Excel and got a figure: if I put $1000 in one of those TFSA (tax-free savings accounts for the non-financial savvy) at BMO which has a
rate of 2.4%, in 25 years I would have a MILLION BUCKS!!! And in 42 years I would be a billionaire.
WRONG!!!
Interest is calculated per month by
dividing the rate (2%) by 12, and adding that to the balance. Thus, with 2.4% per year (0.2% a month) I would only have $3000 after 50 years.
This proof that free money is not floating around shook me to the core. More so than even during the recession, I doubted the power of capitalism.
However, I then learned that some stocks yield gains as high as 300%, and my faith was returned.
Praise the almighty invisible hand!
