The Benefit of Compound Interest

This blog was written by Ashley Hull, Financial Adviser.

“The best time to invest was 20 years ago, the second-best time is today”

“Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it” – Albert Einstein

What is Compound Interest?

‘Compound interest is the principle that when you save money, as well as earning interest on the savings, you also earn interest on the interest itself.’

Simple Version

You Put £100 into an account paying 5% per year.

  • Year 1 the account is worth £100 + 5% = £105
  • Year 2 the account is worth £105 + 5% = £110.25 and so on and so on
  • Your account is growing without doing anything

Case Study

3 People want to Invest for their future and each believe they have 30 years where they can afford to invest money annually.

They each want to invest £10,000 per year and receive the same growth rate (5%) but with different starting dates:

  • Person A wants to start immediately
  • Person B wants to wait 5 years
  • Person C wants to wait 10 years

Who will have the Biggest Investment Pot in 30 Years?

Person A – £664,388

Person B – £477,271

Person C – £330,660

Person A has more than double that of Person C and £187,067 more than Person B.

For Person B to reach the same value of Person A they would have to contribute £13,500 per year.

For Person C to reach the same value of Person A they would have to contribute £20,000 per year.


Time is your friend with investing and makes compound interest effective. The key is to start now to help build your wealth and achieve your financial goals.

If you would like to discuss your financial goals further or another financial planning matter please get in touch with Ashley Hull, or via mobile: 07741 242151.