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How do you use an IRA compound interest chart?

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Quick Answer

Use an individual retirement account compound interest chart to estimate returns on IRA investments at various rates of interest and lengths of time, explains About.com. Compound interest charts show the time value of investments and the advantage of starting early with a carefully planned investment program.

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Full Answer

The principle of compound interest involves earning income from interest on the interest you accumulate from your initial investments, notes About.com. As interest compounds, greater returns accumulate on the investments. IRA compound interest charts demonstrate that workers who invest the money they deposit in IRA accounts when they are young and allow the interest to compound over decades can multiply the value of their initial investments. Special tax treatment of IRA accounts allow investments to grow rapidly because the accumulated income is tax deferred until the owners withdraw it.

Although compound interest charts show that some investments offer higher rates of return and more rapid accumulation of wealth, such investments are volatile and carry the risk of losing the principal on your investment, warns Bankrate. Charts offer hypothetical scenarios of rates of return, and actual returns for long-term investments may vary over time. Steadily accumulating compound interest at a moderate rate of return may offer a more secure long-term profit than dangerous high-rate investments, points out About.com.

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