Compound Interest-ing!

by Stephanie Berenbaum – updated January 8, 2014

Growing Your Savings Account Long Term

Made any financial resolutions this year?  Broken some already? You’re not alone.  But if you need inspiration, we’ve got it – in the form of a compound interest calculator!  In an instant, it can help you see the potential rewards of sticking to your financial plan in 2014 – and why saving even small amounts can mean big money down the road…

What Is Compound Interest, Anyway?

In case you’re not familiar with the concept, compound interest is what happens when you have money saved which is earning interest – and then that interest is added to the original principal sum – and thus you have a continually growing amount that is earning interest.  It’s not magic, but it can feel sort of magical…

Mind Blowing Math

Ready to have your mind blown?  Just go to an online compound interest calculator, and plug in a few numbers.  Let’s say you have $5000 – at a 3% interest rate over 20 years – with no additional deposits - that turns into $9,030.56.  Not bad, right?

BUT –  if you can skip your daily $4 latte and instead add that money to the account each month ($112 per month) –  your initial $5000 investment grows to a whopping $45,144.34 in 20 years!  If you ever needed inspiration to curtail your Starbucks habit, this is it!

Nimble Numbers

See, math isn’t so boring after all…  And we think playing the compounding game is actually fun.  Instead of being bummed out about cutting expenses, imagine what can happen when you reinvest that money into a savings account or other investment vehicle – now that’s Fab & Fru!

–Keep in mind that compounding interest works the other way too.  If you do not pay your credit bill off each month, the remaining sum you owe compounds daily – and you will keep owing more & more.  Avoid paying more by only spending what you can afford in any given month, and paying your credit card in full each pay period!

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2 Responses to “Compound Interest-ing!”

  1. louie says:

    It’s not what you make, but what you wind up with. The real trick, and the one I believe this article is trying to point out, is that a continual and disciplined savings plan pays off. You don’t have to skimp but being judiciously frugal does pay off if you follow the discipline religiously.

  2. Molly says:

    I’d like to know where the writer of this article found a bank with a 3% interest rate! Most banks are offering less than half a percent!!! And CD’s are offering .95%. I found one bank offering 1% interest, but there was a minimum of a $25,000. deposit.

    I realize that’s not the point, and compound interest is, however, if you’re going to show an example, make it a real one.

Any Thoughts?