Millionaire Challenge

lessonlearned

Ok here is a quick example of compound interest.

Say I gift my as yet unborn grandchild £1k on the day he is born, and we assUme an interest rate of 5 per cent compounded monthly then he would have savings of £19,960.74 for his 60th birthday - nice little retirement bonus.

If his parents could add an additional £10 per month (a cup of coffee per week in today's terms) then that sum would be £65,657 -12.

If he left the investment to run til he was 65, just another 5 years - the figure would be £25616.79 and £84,943.25.

Kayalana99

Compound interest is interest on your interest or so I was told?

So if you put £1,000 in a savings account at 5% interest you get £1.050 at the end.

If you were to get compound monthly interest you'd get say £4 a month rounded so after month 1 you would have £1,004 and month two you would earn interest on that £4...so without working out the maths you would have more then £1,050 at the end on the same interest rate as that extra £50 was earning cash to.

Compound is basically earning interest on the interest?

Might be what you were trying to say anyway but in simpler terms, I might be wrong but it's what I was told.

Buffythedebtslayer

Wow, thank you

so if I left my ISA in place for longer than a year I would earn Interest on the interest.

xxxxxx

somethingcorporate

Buffythedebtslayer wrote: »

Wow, thank you

so if I left my ISA in place for longer than a year I would earn Interest on the interest.

xxxxxx

It doesnt have to stay put, it just needs to be somewhere earning more interest. Don't view it as "profit" withdraw it and spend it. Make sure it is always somewhere working for you.

lessonlearned

Buffythedebtslayer wrote: »

Wow, thank you

so if I left my ISA in place for longer than a year I would earn Interest on the interest.

xxxxxx

Yes, interest will be compounded either annually or monthly. If monthly then that hypothetical 5 per cent actually works out at 5.2 so even better.

Depending on your tax status - ie if you are a standard rate tax payer - you might be better moving your ISA to a current account. Some of them pay a lot more interest than ISAs - even after allowing for tax relief.

Some current accounts are paying as much as 5 per cent, most cash ISAs pay less than 2 per cent.

Karmacat

One of the central financial things I *must* do is to make my money work harder for me, its a couple of years since I've really shifted things around. Need to research p2p loans as well, as a source of income.

cazmanian_minx

I was wondering - if I suggested it in the Site Feedback section, would anybody be interested in having a diaries sub-board of the Boost Your Income board? I'd like to keep a diary going after I finish paying off my last credit card, but don't really feel I belong in Mortgage-Free Wannabe any more, because I'm actually borrowing more to increase my income by buying another house. A diary here would seem to be the right place and I'd really love to follow the stories of other people trying to make extra cash. Thoughts?

Kayalana99

I prefer it like this to be honest where we all have one thread we can post what's going on, never really been interested in having my own thread and I have my blog for my personal diary which I don't expect replies to.

If we all had our own thread/diary I feel our voice would get lost rather then being all here together and sort of chatting? Just my two cents though.

Karmacat

Caz, sorry, I'm still happy on MFW for my diary - you're not out of place there because you're buying, plenty of people buy/increase their mortgage over there. Gally Girl has, Cheery is looking at one when/if she gets a new place, I'm only there for my retirement gubbins - you'll be fine!

Buffythedebtslayer

and I stayed in the debt free diaries cos......well I felt at home there!

It is funny, I still feel in debt even tho I am not - but owe myself about 30000 pounds, ( I was in debt to about 25000) so I guess I am.