Compound interest turns people in to millionaires

Vickyweeks

I an currently reading a Tony Robbins book titled "Money, Master The Game" and have been blown away by the idea of compound interest. According to Tony, many Americans set up compound interest accounts whereby they regularly put a set amount away with a fixed interest rate and simply let their money multiply over the years. One example from the book describes a man who saves 4000 dollars annually from the age of 20 through until 40 at a 10% rate and from 40 to 65 keeps his money sat there to further multiply with no further contributions. By the time he is 65, he has 2.5 MILLION dollars in his account....you can now see why I said I was blown away.

I am keen to start investing in a similar account but after hours of research, it seems that there are no such schemes in the UK ( as far as I can see). Can anyone shed any light on this? Is there another name for compound interest in UK that is making me miss this? The savings account schemes that I have found come no where close to what this book describes which I'm finding incredibly frustrating.

If this is an 'American thing', is there any (safe) way I can still invest with such companies internationally and still benefit in ways that my book describes?

Thanks in advance

Stubod

..all normal accounts pay compound interest if you leave your money in them... ie the interest you make in the first year, if you leave it in the following year will also make interest. etc etc....problem is getting 10% interest.......over the last few years it has been more like 2%, (and now less than that).....that brings the final number to about £160k using your example above.

Plus you have to remember that while interest "adds" value..inflation erodes it..it is more important to consider the difference between inflation and interest.

ie better to have 2% interest and 1% inflation than 10% interest and 11% inflation.....

jimjames

If you're looking for long term money to compound then you should be looking at investments and dividends not interest.

I'm not sure any bank would refer to compound interest, it's just a standard bank account.

weenie15

If you have youth on your side and unlikely to need to touch your cash for 20+ years, then perhaps the stocks and shares ISA could be an alternative.

Regularly invest tax free, reinvest all income/dividends and you will get a compounding effect.

Of course, investments are not as safe as cash, as they can go up or down but if you diversify, ie don't put all your eggs in one basket, then there's a good chance of inflation beating growth in the long term.

The Monevator website has some good info on how to build a low fee diversified portfolio, plus info on cheap investing platforms.

Good luck!

Mr.Generous

look up the best saving rate you can see then re do your sums. Then look at something else. Interest rates are so low at present saving cash wont make much difference.

BananaRepublic

I think the highest interest I've had over the past 15 years is 5% which drops to 3% after tax. I've had much higher from unit trusts. And in an ISA they are tax free.

greenglide

I think the highest interest I've had over the past 15 years is 5%

What about the crazy bank days when IceSave etc were paying 7.5% or more as a fixed rate for 5 years?

We had some of that most of which spent 4 years in FSCS paying the same rate while interest rates plummeted.

It was a different age and inflation was high which, of course, ate into the profits.

It was less than 10 years ago!

jimjames

BananaRepublic wrote: »

I think the highest interest I've had over the past 15 years is 5% which drops to 3% after tax. I've had much higher from unit trusts. And in an ISA they are tax free.

Just looking at the performance of one of my investments over the last 5 years, a period when interest rates have been rock bottom and many have said investments are pointless or not going anywhere. The 5 years are as below:

8.33% 31.90% 18.28% 15.37% 5.10%

As you can see, investments start to give a much better way to compound. Not guaranteed, not straight line but bigger potential

PeacefulWaters

greenglide wrote: »

What about the crazy bank days when IceSave etc were paying 7.5% or more as a fixed rate for 5 years?

We had some of that most of which spent 4 years in FSCS paying the same rate while interest rates plummeted.

It was a different age and inflation was high which, of course, ate into the profits.

It was less than 10 years ago!

12% on Halifax regular saver!

darkidoe

jimjames wrote: »

Just looking at the performance of one of my investments over the last 5 years, a period when interest rates have been rock bottom and many have said investments are pointless or not going anywhere. The 5 years are as below:

8.33% 31.90% 18.28% 15.37% 5.10%

As you can see, investments start to give a much better way to compound. Not guaranteed, not straight line but bigger potential

Out of curiosity, is this a active fund/tracker fund/individual share?

jimjames

darkidoe wrote: »

Out of curiosity, is this a active fund/tracker fund/individual share?

It's a managed fund, first one I just picked from my portfolio.