Compound Frequency — How much does it matter?
Dear ICONFi users,
When investing money, it is important to understand how often interest is compounded. By depositing BTC, ETH, USDC or USDT into an ICONFi Fixed or Flexible Earn account, you earn interest that compounds SIX times every day — that is once every four hours, or 2,190 times a year.
But what is compound interest and why does the frequency of payouts matter?
What is compound interest?
Compound interest (or compounding interest) refers to the addition of interest on previously earned interest. It results from reinvesting interest as opposed to paying it out. This means that for each interest calculation period, interest is calculated on a principal sum PLUS any interest earned to-date.
This is in contrast to simple interest, where interest is only paid on a principal investment. With simple interest, accumulated interest is not included in interest calculations.
Since compound interest includes the payment of interest on interest, investments grow at a faster rate. By increasing the frequency of compound interest calculations, investors have more opportunities to earn interest.
Higher frequency = more wealth.
Let’s calculate how much of a difference compound frequency can make on your portfolio.
Interest can be compounded at any given frequency, most often ranging from daily to annually. ICONFi compounds interest SIX times every day — more frequent than any other crypto savings platform.
The formula for calculating compound interest is given by:
P is the original principal sum
P’ is the new principal sum
r is the nominal annual interest rate (APR)
n is the compounding frequency
t is the overall length of time the interest is applied
The following example will show the effect of compounding frequency on a US$100,000 over ten years at an APR of 12%. This reflects the highest available rate for an ICONFi USDC Fixed Earn account. We compare annual, quarterly, monthly and ICONFi’s (2,190 times/year) compounding frequencies.
Compounding frequency results in higher yields as it increases, though the rule of diminishing returns applies. The gap between yearly compounding and quarterly compounding is more significant than the gap between quarterly and monthly.
Over a ten-year period at 12% APR, ICONFi’s compounding frequency results in US$21,416 more interest than an annual compounding rate.
An APR of 12% in the ICONFi application is equally to an APY of 12.749%. That is because with ICONFi, we compound interest SIX times daily, equal to 2,190 times a year.
Most of our competitors display their interest rate offerings in APY, i.e., the rate that accounts for compound interest. ICONFi’s APR rates are already some of the highest in the market. Factor in our compounding frequency and the choice becomes clear.
Not all interest rates are equal. Compounding frequency has a significant effect on the value of your investment portfolios. ICONFi offers the highest compounding frequency in the market on top of our already amazing interest rates.
ICONFi is a digital asset savings platform that provides simple & intuitive earn products so that anyone can easily multiply crypto assets. ICONFi aims to simplify the complicated processes often associated with crypto assets and offers a sleek, straightforward user interface which supports saving, staking and airdrop activities at the palm of your hand.