THE MIRACLE OF COMPOUNDING INTEREST

Saving and investing for the future is great gain. Be it towards retirement, college trust, medical purpose or dream vacation. We will look at the reality and the benefit of starting early to save for the future. Compounding interest is simply the interest you earn on both the principal and the accrued interest.
There is a story of a master who gave his servants talents. To one he gave five, another two and another one. The one he gave five talents doubled it, so did the one with two. The one he gave one talent buried his in the ground for safekeeping. Their master returned and praised the two servants who doubled theirs, while he called the third servant lazy and wicked.
Our talents should multiply! Let us look at another story of two children Helen and Ruth. Their parents begin saving =N=25,000 per annum towards their college fund. Helen’s parent began saving when she was age 1 till age 10. Ruth’s parent started at age 10 till age 26. Now let’s see the magic of compounding interest work for both of them.


AGE HELEN’S SAVINGS COMP INT RUTH’S SAVINGS COMP INT
1 25,000.00 26,000.00 0.00 0.00
2 25,000.00 53,040.00 0.00 0.00
3 25,000.00 81,162.00 0.00 0.00
4 25,000.00 110,408.00 0.00 0.00
5 25,000.00 140,824.00 0.00 0.00
6 25,000.00 172,457.00 0.00 0.00
7 25,000.00 205,355.00 0.00 0.00
8 25,000.00 239,569.00 0.00 0.00
9 25,000.00 275,152.00 0.00 0.00
10 0.00 312,158.00 25,000.00 26,000.00
11 0.00 324,644.00 25,000.00 53,040.00
12 0.00 337,630.00 25,000.00 81,162.00
13 0.00 365,180.00 25,000.00 110,408.00
14 0.00 379,787.00 25,000.00 140,824.00
15 0.00 394,978.00 25,000.00 172,457.00
16 0.00 410,777.00 25,000.00 205,355.00
17 0.00 427,208.00 25,000.00 239,569.00
18 0.00 444,296.00 25,000.00 275,152.00
19 0.00 462,068.00 25,000.00 312,158.00
20 0.00 480,551.00 25,000.00 350,644.00
21 0.00 499,773.00 25,000.00 390,670.00
22 0.00 519,764.00 25,000.00 432,297.00
23 0.00 540,555.00 25,000.00 475,589.00
24 0.00 562,177.00 25,000.00 520,613.00
25 0.00 584,864.00 25,000.00 576,438.00
26 0.00 608,051.00 25,000.00 616,136.00
250,000.00 425,000.00




At age 26 years of age Helen and Ruth both have a =N=600,000+, however, Helen’s parent contribution was =N=250,000.00, while Ruth’s was =N=425,000.00. Rates are based on 4% interest compounded annually. Today banks offer 4% for your child’s super saver account. Of course, this analysis works perfectly in an environment of stable inflation rate and minimum rate of currency devaluation. Imagine the figures in dollars saved at a New York bank!
The point is, start to save early and be committed to your savings plan. Time waits for no one. Helen’s parent saved =N=25,000 only for 10 years, and Ruth’s did not save for the first 9 years, and had to contribute almost twice the amount that Helen’s parent did for 17 years to arrive at about the same place.
The miracle of compounding interest can work for a child, adult, business organization or even an economy. Start a plan today!