Compound Interest

Zola. · 28 April 2016 at 4:31PM

I am not sure I understand how this works?

http://www.telegraph.co.uk/finance/personalfinance/investing/10742396/When-saving-for-10-years-pays-more-than-saving-for-40.html

I have watched videos on YouTube where guys talk about investing £4k for ten years earning 10% per year etc.... where on Earth do you find accounts that do that?

I understand the theory about how it all adds up cumulatively, but how are you supposed to find these interest enablers?

Biggles · 28 April 2016 at 4:37PM

They're not talking about savings accounts, they're talking about a pension scheme, which would be invested in equities and could quite likely achieve 7%.

The bit about 10% is just an example to help you understand the principle. Maybe they should write that bit again....
;-)

bigadaj · 28 April 2016 at 6:40PM

Or there's p2p lending now, many platforms have rates at 10-12% but your capital is at risk. These have only been around for a few years so whether this continues, or the investments or platforms go bust, who can tell.

The higher the return the higher the risk, so you pays your money and takes your choice.

bowlhead99 · 28 April 2016 at 8:50PM

Something they don't really endeavour to point out is that someone in their forties or fifties now might be reading the article and regretting not putting the £2500 away when they were age 21, but at that point it could have been a quarter of their first year's salary as a fresh-faced university graduate, and being loaded with debt and needing to spend money on getting a car and a smart suit etc it was a relatively unattainable level of savings. While now it might just be a week or two's pay.

Call me a cynic, but I wasn't surprised to hear that Mr McDermott "of Chelsea Financial Services, the investment shop", is keen to point out that: “The lesson from all these figures is that there is no amount too small to start investing and that starting early gives you a huge advantage." or that "how crucial it is to stay fully invested and to keep reinvesting any interest".

I jest, but clearly it is a good thing to invest what you can as early as you can if you want to have more later - because compound returns are very useful indeed.

Compound Interest

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