What is compound interest?

Compound interest simply means that you earn interest on saved interest. Over a long time, this creates a snowball effect that makes your savings grow exponentially.

How it works in practice

Let's say you invest 100,000 with an annual return of 10%.

• Year 1: You earn 10,000 in interest. You now have 110,000.
• Year 2: Now you get 10% interest, not just from the original 100,000, but also from the 10,000 you earned last year! So you earn 11,000 this year.
• After 30 years: Without you having deposited a single extra penny, the 100,000 has grown to over 1.7 million!

Time is more important than money

Because compound interest grows exponentially, the most important thing is when you start, not just how much you save.

A person who starts investing 2,000 a month as a 20-year-old will end up with significantly more money than a 40-year-old who invests 5,000 a month, precisely because the money has more time to "have children and grandchildren".