Save early, save often: the benefits of compound interest

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One of the main themes to come out of the Government’s 2015 Budget is the idea that Australians should plan to be self-sufficient in retirement – and not rely on the Government-provided age pension.

That means your super balance and personal savings will have a vital impact on your lifestyle in retirement. Act now and use the benefits of compound interest to your advantage.

Compound interest is a really simple concept. If you have a savings account earning interest, it’s already compounding – that is, earning interest on the money you deposit as well as on the interest you’ve already earned. The best thing about compound interest is you don’t need to deposit huge sums of money.

Compare these two situations:

  1. Marie is 25. She decides to start depositing $100 every month into a high interest savings account at 3.5% interest, compounding monthly. If she continues like this for 20 years, she’ll end up with a total of $34,687.
  2. Sally starts to save ten years later, at 35. She deposits $200 every month into the same type of high interest savings account at 3.5% interest. After ten years, Sally only has $28,687 saved.

Even though Sally’s deposits were double Marie’s, she didn’t catch up. With compound interest, slow and steady really does win the race.

If you need help working out how much you can afford to save each month, after covering all of your outgoings, trial Map My Plan today and get personalised savings tips based on your circumstances.

Test your financial fitness Try it and see how you compare. It'll take you two, maybe three minutes tops


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