Compound Interests: Three Helpful Facts

To be honest, I've never heard of compound interests except when I tuned in the news and a UK insurance scandal came up. It would seem many affected had better refunds from the mis sold product because of compound interests.

But it didn't help that compound interests had a negative impact with me. As I learned when I got my first personal loan for a car, compound interests were a friend and foe.

Majority of times, however...

Compounding Is a Friend

Compound interests on paper look like they just achieve some small amounts at every turn. For example, a £2000 deposit could only earn about 3pc even on high-yield savings accounts. Well, for the first year alone.

But if you think about it, the more money you save, the more it begins to make sense.

Growth For Years On End

If you have a £2000 contribution at the age of twenty or even 30, you could expect a return of £90,000 by the time you retire with an average 8pc annual return. This is an ideal outcome if you never touch your money.

Earnings really begin when you reach your twentieth year of paying for your investment, or the twentieth year of leaving it alone with your bank.

Making It Work For You

Of course, the catch is saving enough money to contribute to your compound interest-laden account. If you can save a large amount, depositing it immediately will earn it higher yields. 

The more profit it earns, the higher amounts you get. Making it work for you simply just means living below your means and starting to save money as early as possible.