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!

The amount isn't the important bit, it's instilling the habit of being patient to quietly compound any money. Even if it's £10 a month, children should understand this. Many teens and young people say there's no point as the money in ten years isn't going to be a lot anyway, but that's missing the point entirely.

It’s only really relevant to people who have £200 per month to put aside and never need to touch. It’s also only relevant to people who wouldn’t benefit more from putting that extra £200 towards paying off their mortgage.

Same. Not a whisper. I’ve had little use for quadratic equations in the last 30 yrs…a bit of financial info would have been great - pensions, mortgages, credit cards.

We were fortunate to be able to put £100 a month into the DC’s government trust fund, later a JISA . It was over 40K when they got to 18, which of course could be dangerous for some teens, ours fortunately were sensible.

Rebel Finance cover this in a really good way. Think those £5 cups of coffee even twice a week is £40 a month, over ten years is x etc etc. This is where I think it’s powerful as these now everyday things are expensive.

@Rozendantz what investments did you use

When I was at school there was a trend for trying to do gcses early so I did maths gcse in year 10 and statistics gcse in year 11. My only takeaway from all of that learning is to never trust statistics, it's very easy to bend them to say what you want to say!

That child trust fund sounds amazing. I'm saving into a jisa for ds but only about £35 a month, as you say I don't want him getting handed £30-40k at 18.

I'm naturally a saver anyway but I only really fully understood the power of compound interest when I opened the isa for ds. I think at age 2.5 with the interest at the time (was 5 or so percent) anything I had invested by that point would have doubled by the time he turned 18. Obviously you keep making your small monthly contribution and it becomes very powerful. I'm feeling the pain of compound interest on our new mortgage at the moment as well.

Typical investment returns in a fund tracking the US stock market are about 8-10% a year over the long term. So for the vast majority of people it’s better investing that 200 a month than putting it into the mortgage.

But the mortgage pre-payment is the same point. The reason prepaying a mortgage is good, especially when rates are high, is compound interest.

It is amazing - but be careful of government taxes and account fees, they can wipe out gains very quickly.

Mumsnet being subtly used again for an advert?

Annoying but I suppose the owners are flattered that those with a product to sell bother to use Mumsnet

Good point

Exactly. People can’t grasp that school is there to give you the tools to learn new things for yourself, and not to teach you every little thing that might be useful in adult life.

Odd that they didn’t teach you how to do percentages in or before about year 5? It’s basic arithmetic.

The UK’s ISA allowance for tax free savings and investments are some of the most generous in Europe.

The government has done its bit through pension auto enrollment

The minimum employer contribution is 4%, which is crap.

I teach it as part of PSHE, along with tax, NI, pensions, house buying and renting etc. Even when I get ridiculously excited by compound interest, it doesn’t feel very relevant to 15year olds! I wish I’d prioritised saving long term, I’ve come to it very late. Happily though, my kids are converted and have a much better handle on their finances than I did.

I think you’re underestimating how broke most young people are.

I will have a good pension through my job and I’ve had stable regular income and a decent ish salary since I was 21 but I was in my overdraft by the end of each month and had some credit card and student debt throughout all of my 20s. Yes I took holidays and socialised, nothing excessive. had managed to get myself on the property ladder though. Thirties were also a financial grind due to maternity leave and childcare fees. I’m mid 40s now and finally comfortable with some savings.

Also, when does living life come into it? What is the point in giving up any positive experiences in your youth just so you can save every spare penny for your retirement?

But there a big leap between “knowing percentages” and “having a good intuitive sense for exponential growth”. The latter is very useful in life. If we aren’t going to teach it in practical application, we are leaving behind all who can’t make that conceptual leap.

We know from Covid that only a tiny fraction of people can think naturally in terms of R (rate of reproduction), even though it is “only percentages” (ie just compounding).

Unfortunately I didn’t realise that you could open a pension for a child until ours were late teens. I read that £2880 a year from birth - 67, assuming no higher contributions over all that time would yield a 1.5M pension with conservative growth.
That wont seem such a huge sum in 70yrs, but it’s a bloody good start!

@LGBirmingham my DC have cash ISA with about 3% interest and stocks and shares ISA which double roughly every 7 years.

As pp said COVID and other dips cause the investment to fall but these falls are when you buy on sale.
They always bounce back more.
Why ?
Becusee you own small slices of the most productive companies in the world .
What happens if a company suddenly fails ?
If you have basket funds you will own hundreds of companies at the same time so let's say apple suddenly went bad...it won't affect you because it will be replaced by another.

My DC from very young ages have had financial education they see our family spreadsheet t they know we save for things with smaller amounts each month.
They undertsnd that you build investments buying baskets of diverse shares across counties and sectors they know you don't buy and sell shares daily or buy into one company.

They undertsnd the cash ISA produces nothing but it's what they need to balance their shares ISA because they don't want to skim that when the market is low.
They also understand that £25 a month from an early age makes a huge difference later on in their sipps.

The times newspaper has done a lot of research into this and they are clearly of the mind this is not taught properly in school and they campaigning for 15 hours taught by professionals.

If you put 5 a month in for 30 years:

Future investment value
£4,183.63
Total interest earned
£2,378.63
Initial balance
£5.00

in the £1 example compounding means it would be more like 4.46 which ok, who cares?!
but £1 a month ends up with the investment plus 475.

most basic stocks funds will be more than 5% over that time period. Your sticking point is probably that many have a minimum starting amount

Nonetheless this still happens people still pay fees, (platforms and advisors) and 1% fees doesn't sound like a lot - but it will put a serious dent in your savings. And interest on savings outside of ISAs is very punitive - always best to pay attention to all the details.

That's the key, having a mortgage. Or rather earning enough to be able to get a mortgage (were a pension comes with such a job). For people who have come from families were they have to claim top up benefits, from time to time, savings aren't worth it. For people who have difficulty keeping (through health) or finding a job, over 55, your pension is deducted from any benefits claimed. For people who can lift themselves out of never needing the benefit system, their money can really work for them. That's mainly because they have enough, consistent, disposable income. There's many women on here, who think that's their situation, until their marriage starts to breakdown. Which is why many people go to overpaying the mortgage rather than their pension.
@Soontobe60 your DD must have had that £10k disposable enough to be able to save it, then earning enough to qualify for a mortgage. That's a privileged position to be in. My DD was on the property ladder at that age and has a £200 a month mortgage, she's lucky to have got an inheritance.

@user7463246787 @MotherOfCrocodiles

The gov tops up whatever you put in by 20%. For self invest personal pensions , sipps.
Both mine have one.

We can't afford to put much in but I thought it's important it's "there ",. You can open with 100.

I will be encouraging them to put 25 or whatever the min is when they start working.

As you say mother there won't be millions but what a wonderful easy bonus to give them when they hit retirement age.
I wish someone had done it for me .

Sure, but compounding effects show up all over the place in real life. Salary and job decisions, borrowing, investing, habits.

Certainly far more than terminal moraine or the Spanish Armada (though they are great too).