The magic of compound interest

Few people realise why they should start saving early as possible.

Surely the returns are the same if you start now or in five years' time?

Absolutely not so. And it's precisely because of how compound interest works.

If you invest $1 every day and your annual interest rate is 5%, you'll get 5% of $365 in a year's time (some savings accounts pay interest monthly, which means you'll probably be even better off).

Whatever 5% of $365 is, will be added to your pot. Let's say it's $17 or something. $382.

The next year, in addition to the $365 of cash you invest, you'll add the $382 you earned last year. So instead of getting 5% interest on $730 ($365 twice) you'll get interest on $747 (ish). Which takes you up to about $784.

In two years you've gone from $730 in money invested, to $784.

Delay your investing strategy by five years and you aren't just losing out in principal (that's the original investment) - but five years of compound interest.

Which, quite literally, all adds up.

$20,000 free

Start early and get a free gift of $20,000 in compound interest.

 

Start saving. Even if it means a quid a day. Which if you're one of those soft southerners, is probably about a pint of milk or a quarter of a cup of 'joe' at one of those coffee shops that don't pay taxes.

Sobering, eh?

Free money sound good? Invest early. As in, now. Simple as that.
lifeDave Thackeray