How to benefit from compound interest

Compound the Pound

Albert Einstein has been attributed as calling compound interest the “eighth wonder of the world”.

What is compound interest?

Compound interest makes your money grow faster because interest is calculated on the accumulated interest over time as well as on your original principal. Compounding can create a snowball effect, as the original investments plus the income earned from those investments grow together.

Alternatively, for a more practical explanation, imagine planting a small magic money tree in your back garden. You water it, tend to it, and over time, it begins to bear fruit in the form of interest. Now, instead of plucking and enjoying these fruits immediately, you leave them on the tree. These fruits themselves start to grow new fruits. Over time, your tree becomes larger and larger, bearing more and more fruit. This, in essence, is the concept of compound interest.

Why aren’t more people maximising the benefits of compounding and investing over long periods?

We suggest there are two main reasons.

Firstly, some people misunderstand the mathematical side. When asked, many people would say that 10% growth for 25 years is 250%, but it’s actually 985% when compounded.

The second reason why many fail to take advantage of compounding is because it takes time (lots of time).

Click on the image to find out more about the concept of compounding and how it can be so powerful giving you an ever-accelerating rate of growth.

Compound interest benefits

If you have a question about your investments, please complete the form below or call us on 01825 76 33 66.