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!

It is taught in schools and it's not exactly rocket science anyway.

Interest on interest. Nothing complicated. My dad taught me about it and he was a barely literate manual worker who left school at 15 with no qualifications.

But too many people are proudly 'bad at maths' and more interested on spending their money on crap so won't save even when they can afford to.

Compound interest PLUS regular saving (so that that also compounds) is the really incredible thing.

I’ve gone so far as to write it out in a big table before—if I save £x every year and it earns y%—and it’s just amazing how much you’re amassing once a few decades have passed. It’s so unintuitive though – even with the proof in front of me, it just doesn’t look right.

What it shows is that humans are really bad at perceiving how time works. Small changes repeated over a long period result in changes so colossal you can’t comprehend them.

Demography is the same. The numbers are pretty much already settled—the native population is going to collapse, religion is going to make a huge comeback, Africa is going to make up half of the world—but none of that seems right so we don’t think about it, or we even just deny it.

What is really impressive is upping the savings/investing amount each year. Start at £10, then even just £1 more, doesn't feel much of a strain. Over 20, 25 years makes a difference. There must be a calculator somewhere or AI will knock it out.

On the education front: I have a degree in finance and still didn't practice the theory. Risk averse re S&S and thought trading costs were huge.

We are warned that buying stocks and shares are risky - you might gain money but you might lose money too - we are not taught that putting money in a bank account is almost always risky - you will always lose money - inflation will take it from you and worse than that - if your savings sit in a bank account outside an Isa and the Gov tax the interest on your savings - which are unlikely to be keeping up with inflation, you are taking even more of a loss.

Not really, paying off my debt was of more importance than saving at that time.

So which of the two is best ie which will get you more money?

@Howmanycatsistoomany people don't know what they don't know.

Hence thankfully the times is trying to help everyone.

People need to understand the effects of compound interest both on savings AND on loans. Also, as others have pointed out, an understanding of the effect of inflation upon cash savings is essential (ie your cash savings are worth less as time goes on due to the increasing cost of living). Which is why stocks and shares tend to outperform cash savings in the long term.

I’m 36 and was definitely taught this in school, with the example of a bank account. I would bet at least 20 of the other kids in the class would swear blind now that they weren’t taught it, or weren’t taught it in a “tangible” way.

Also you can literally tell some 18/19/early 20s the importance of contributing to a pension at their age until you’re blue in the face, and many of them still won’t do it.

Yes just Google S&P historical performance for example so see the average growth. And play around with a compound interest calculator - that to me was eye opening

I don’t understand why people buy new cars - if you look at the depreciation graph, the value plummets over the first two years then tails off very gradually. So buying a two-year old car (at maybe half the cost of a brand new one) is a much much better idea than buying a new one…

I started a personal pension at 25, that I paid into for a few years and then left it to stew, and didn’t pay much attention to it (very busy / chaotic life with SEN dc and long term health conditions)….. 30 years later, and I am really upset to learn that it is now only worth £20k (total pot), because when I set it up, I chose to invest it into an ethical pension fund, which apparently has had really really low returns over the last 30 years (apparently current return is something like 2%). I am upset mainly about the fact that ethical investing should be a good option (not just for society), but for the individual as well.

But spending was also more important than saving? …

On the assumption that people have a "few hundred quid" to stash away on a regular basis.

This is probably more of an issue than their understanding of compound interest.

Overpaying mortgage payments is also a good example of this. Worth checking the T&Cs, but mortgages we have had have allowed capital overpayments of up to 10% a year penalty free, and one mortgage we had also allowed regular monthly capital overpayments on top of that, without penalty, so long as the monthly overpayment was less than a certain amount (I can’t remember what it was). When we realised this, we channelled every extra £ we could to making overpayments, and it eroded our outstanding mortgage amount really well.

Yes! I loved my 20s. I suppose I could have sat at home, never travelled, not gone out, etc and saved every penny but that would have been shit (for me). Instead, I earned, had a social life, paid high contributions into my public sector pension, paid off debts and now I’m mid 40s, I’m solvent, with savings, a good pension and loads of happy memories and experiences from my 20s.

We pay double our contracted mortgage repayment every month. I’ve yet to make my husband understand the effect this has on compound interest so he’s pleasantly surprised every May when we get our annual statement 😂🤦‍♀️

I'm assuming most children don't have debt. This habit or at the very least mindset needs to be instilled from childhood.

I've just locked £16k away for 5 years, with an interest rate of 5.25%. When I get the money back, it'll be worth £20,790. I'm pretty happy with that!

Depends how you use the intuition. Over 40 yrs:

£200/month at 0% real (average bank interest) = £96k

Same outcome as £63/month at 5% real (average stock return). £96k.

So compounding is arguably even more useful to people with little spare income.

You don’t need to save hundreds even. £20 a week for 45 years would give you £300k at 7% investment returns.

I’ve actually just run through putting £1000 into a pension for the kids for 55 years after some of the comments here. With £10 a month deposits, it’s £124.5k. £20 a month would be £200k. Thats insane, I think I’ll start a pension for my children also. It’s something I hadn’t thought of before this thread

There are apparently kids whose parents really went for it with maxxing out child ISAs, and who as a result are by the time they hit 18 already millionaires. That can’t be all compound growth, as the investments have to be winners too, but it does show the huge effect that time can have.

@january1244 which calculator did you use?

Lots of adults have no idea about a surprising large number of things.

And in a lot of cases it's their choice.

Horses, water etc .....

So you’re talking about parents saving for kids then or parents giving the children enough pocket money that they can even consider leaving some back from actually being able to spend any to save.

As a 16-18 year old, I saved part of my wages from my weekend job for spends at uni. Then, at uni, I spent, worked part time, still accumulated debt but managed to save enough for a month long trip to the US post graduation.

This is my point… if you’re talking young people themselves saving, they will normally be saving for something much more short term than this never never savings pot being referred to here. Thats if they have enough money to save at all. £10 a month in this savings pot doesn’t sound much to us but have you never counted down the days to pay day?

The children don't even have to be saving, but need to be aware of the concept of compounding over time. Obviously some parents have saved on behalf of their DC from birth, many haven't but the mere knowledge of how money works is a form of wealth in itself IMO.
And yes of course I often am counting down to pay day, as most people are. I am savvy though and would rather spend a tenner investing than go out for a coffee and cake. I fully appreciate that many think that's miserable.