Cashing in on compound interest is all about starting your savings plan early
To benefit from the power of compound interest the sooner you start saving, the better
All you need to grow a one-time investment of R100 000 to R1.7-million is time and the power of compound interest. Ryan McCaughey, executive head of the Cape Town branch of financial planning firm Hewett Wealth, says that to earn R1.7-million you would need to reinvest the interest you earn each year on your R100,000 and to remain invested at a rate of 10% a year for 30 years. To benefit from the power of compound interest, which will allow regular saving of quite small amounts to accumulate to a large sum of money, the sooner you start saving, the better, he says. Any savings account or investment that earns interest or dividends delivers compound interest - if the interest or dividends are reinvested. The power of compound interest comes from interest being earned on the interest or on the dividends. According to McCaughey, delayed saving can have a dramatically adverse effect, as illustrated by the following fictitious case study. Don't delay Jean invests R10,000 a year over 10 y...
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