What does 5 years of Compounding 20% APR actually mean?

As you may already know, the interest for saving HBD has been increased to 20%. Witnesses got together and after consideration, they made a decision that affects everyone on the chain.

In one of @dalz publications, he discussed the inflation and other HBD related stuff that you can consider checking. He talked about the sustainability of the system and the inference is that it mostly hinges on the price of Hive.

Anyway, I was just in my private corner thinking about what compounding 20% APR actually means. It is pretty simple math that looks very sexy when you say it out loud.

So, let us assume Mrs A finds out about HBD savings today and decides that she's going to throw in 1000 HBD into savings for the next five years. Her plan is to only come online to claim her interest at the end of every monthly cycle.

Understanding the compounding feature will make you understand how sexy holding 1000HBD in savings for five years can actually be.

I used five years because if we were talking about simple interest, then that's exactly how long it will take for Mrs A to earn her initial capital of 1000HBD as interest.

Compound interest ensures that she takes a shorter time to earn her capital and here's how the math works.

• You earn 20% interest per year. That interest is then divided into 12 and paid monthly.

• The first month: 20% of 1000 divided by 12, giving you 16.667HBD

• The second month: 20% of 1016.667 divided by 12, giving you 16.9444HBD

• The third month: 20% of 1033.597 divided by 12, giving you 17.227HBD

Here is a screenshot of what one year of saving 1000HBD gets you.

Just as expected, the monthly interest rises with each passing month. This right here is the power of compounding. The longer you stick around, the more you earn.

Things start to get really serious in the second year. From the start of the first year to the end of the second year, we can see a whole 50% rise in monthly interest for Mrs A. This culminates in approximately 48.6% interest from her initial investment.

By the end of the third year, Mrs A has made a little over 813 HBD interest from her initial capital of 1000 HBD. This is an astonishing 81.3% profit in just three years of literally doing nothing but pushing a button.

By the end of the fourth year, you're going to be neck-deep in profit. In fact, in 3 years and 6 months, Mrs A would have earned her initial investment as interest.

This again highlights the power of compounding your interest. Assuming it was simple interest, by the end of the 4th year, Mrs A would only be 80% in profit. That's a whole 41% difference.

At the end of the fifth year, Mrs A would have made 1,740 HBD interest on her starting capital of 1000 HBD. That's an incredible 174% interest on her investment.

In Conclusion

This calculation is pretty much the same for anybody that decides to hold HBD in savings. What I mean is that the exact sum will vary depending on your initial capital, but the percentages remain the same.

174% profit in 5 years is pretty awesome, now imagine what it will be in ten, or even twenty years. Your HBD savings could turn out to be the moon bag you were praying for.

Through this table, you can easily figure out your 5-year interest for any amount you decide to put into savings. So in essence, if you were to put in 10K HBD into savings, in 5 years, you would have earned 17400 HBD interest.

This estimation is also under the assumption that the individual puts in a specific amount and just leaves it to accumulate over the five year period.

The only risk I can see here is the dollar dumping to infinity and becoming useless. I hardly see that happening and considering that HBD is an algo stable coin, we could just tweak the algorithm to British pounds, Euros, crude oil or any other asset we decide.

For reference, here's a link to the full spreadsheet.
https://us.docworkspace.com/d/sIA-C5JhV4Zv6kgY

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