AIBU to think compound interest is surprisingly powerful over time?

[shocked2026]

To think that compound interest is WILD? I know it works negatively with mortgages etc but also over time with tiny amounts of money it can grow exponentially. I realise that many people probably know this already but I didn’t realise how much of an effect it can have!

I didn't and I was in top set for maths gcse

It’s a mandatory part of PSHE/personal development curricula. Trouble is most secondary schools are now exam factories and not many do a good job of teaching PSHE.

Well it depends. With low interest rates, compounding has a much smaller effect than when rates are higher. But often it's not that impressive when you compare it to inflation, based on cash savings interest rates anyway. Stock market or other non cash/higher risk investments often have much better returns, so compounding on those is much more powerful.

If you have a mortgage, then you're unlikely to earn more interest on savings than you're paying on your mortgage. And as you pointed out compounding works in just the same way there, but in reverse. So overpaying your mortgage, especially in it's early days, will have a much bigger financial effect than saving the same amount of money in cash accounts.

My mortgage was 32 years when I took it out, and at the time interest rates were low. I threw money at overpaying it and now I'm just under 10 years in that's already saved me a huge amount, and made it much easier to stomach mortgage rates rises over the last couple of years.

Ultimately though, compounding is just fairly basic maths, so it shouldn't be surprising to anyone really.

Im from Ireland and I was taught…in maths and in business studies .

What really drove the whole compound interest thing home for me was when I was paying into a JISA for DS for his uni costs. I got him involved with it too so that he understood the importance of it and could see how it worked. When he turned 18 he got more than £10k on top of what had been paid in which was awesome and obviously wildly frowned upon by MN because all teens are reckless and feckless, despite the fact that he'll be going into his 3rd year of uni soon, having used this money to pay for it

I’ve been teaching my kids this for years! Everytime they get money (birthdays etc). I ask them if they want to spend, save or invest. They all have stocks and shares ISA’s.

I regularly say to them: ‘you don’t know how lucky you are they your dad and I have taught you this, I didn’t learn it all until I was 30!’ 😄

I agree it's fascinating OP and I have just started investing after maxing out my pension contributions, I wish I had thought about this stuff sooner as I am mid forties but it's never too late. We also have a high rate mortgage which we overpay, to save us loads in interest.
I can't believe how much money I wasted in my twenties and thirties while more wealthy people were getting wealthier.

My DD was taught about it in school, although she already knew about it from me. She started saving when she was 12, and was able to buy her first home at 22 as soon as she left uni, with a £10k deposit she had saved. Not bad going for a teenager eh?

People don’t understand it the other way either. I know someone who’s looking at getting a car. She thought if she got a 20k car on finance at 7% interest that the interest payments would be a bit under 2k. In reality the small print of how much of the repayments was interest was something like 7k. So over a third of the cost of the car again and that didn’t even factor in after 48 months you haven’t paid the car off and have a balloon payment. But she really didn’t understand the interest. Can’t say it makes total sense to me either but I know to look at all the small print t and work it out fully.

I know this thread has become a 'is it / isn't it taught in schools' bunfight, but to your first comment I just wanted to add that Albert Einstein called Compound Interest the "Eight Wonder of the World".
Saying: "He who understands it, earns it; he who doesn't, pays it".

My teens got the message and invested in global markets and LISAs. They are doing well and looking to the long term.

DS is 17. He’s been taught personal finance in PSHE, GCSE maths (Edexel Higher Paper) and AS Core Maths - also at Scouts and from us!. He’s also got a Junior ISA that is a lot healthier than just the sum of the contributions we’ve made.

But maths education aside - surely you grasped conceptually that money accumulates interest over time? And that as it accumulates, you earn interest on the interest?

The interest on mortgages isn’t compound interest.

So if you put £1 in to a child’s pension at age 5 (assuming 5% growth) it is £18 at age 65. If put it in at age 25, it is worth only £7 at age 65. If they put it in at age 45 it is worth only £2.65.

this makes me think I should be putting money in pensions for my primary ages kids- but then I do have a mortgage and my own pension to think about.

also, inflations also compound. If inflation was 5% the £18 in 2085 would be worth the same as £1 today anyway…..

Yes it's only exciting news for those who can make it a reality. For many, they just haven't £200 spare each month to save.

I don’t think it’s rocket science to realise that saving is a good thing to do for your future but when talking about teens and twenty somethings, most don’t have spare cash lying around at the end of each month and the ones that do will be saving for something shorter term and specific eg a holiday, a car, a deposit for first home etc

The maths lesson on compound interest is one of the lessons I can still see in my mind's eye, me writing up the increasing amount on interest on an imaginary loan.

I used to work with someone and remember her being upset that no one had explained to her that if she overpaid her mortgage, it would be paid off sooner. She'd had the mortgage for over 20 years at this point, had been using it like an ATM, and owed more than she'd originally borrowed.

I'm probably not the most financially literate person but fuck me.... 😳

It has been taught for a long time in England.

also, inflations also compound. If inflation was 5% the £18 in 2085 would be worth the same as £1 today anyway…..

Exactly. You always see these examples but it doesn't include a) the impact of inflation and how you need to be paid high interest than inflation or your money loses value and b) the changes in salaries over time and therefore how much you can save.

So, pensions, yes, of course it's good practice to start early. But most people earn more as they get older and so can also save more. My first salary post university was £16K. Can't remember how much I saved into my pension but it would have been less than 5% so <£800pa. Now, 25 years later I have a much higher salary and funnily enough save more, in fact I now save more than my entire salary from 25 years ago. If I'd just save £800 a year for all that time I'd have far less than I actually have and it would buy me far less as well.

It's really an arms race with you wanting to both save enough and earn enough interest that you can beat inflation and lifestyle bloat.

Yes but:
If you invest £1 per day every day for 30 years at an annual interest rate of 3%, your investment would grow to approximately £17,768.33.

Total Invested: You will have contributed £10,957.50

Total Interest Earned: You will have earned £6,810.83 in compound interest.

Final Balance: Your total pot would be £17,768.33.

Can people give it a rest on expecting schools to teach everything? In this day and age, if people can’t be arsed to educate themselves about basic financial concepts, that’s on them. See also basic health!

The government has done its bit through pension auto enrollment.

There are market rate graphs for all time. There are only three days where you invested you wouldn’t get a great return for investing in anything.

Most trackers consistently beat 5% over any period of time. It’s all there and is clear.

Beware anyone claiming special knowledge- it’s always expensive and rarely special.

I think most understand compound interest, it’s the having a spare few hundred every month for years which is the barrier!

But that maths works the same at every level. The time invested and the return make a big difference.

Let’s say £10/month is all that’s affordable to save.

Starting at age 1 vs age 55 is the difference between £7k and £600 by age 60, if you get 0% real return (most bank accounts).

Or the difference between £680 and £41k, if getting 5% real (average stock market return).

Few people are so poor that they can’t save £2.50/week. Few people are so rich that £41k wouldn’t be a welcome amount.