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!

Yep. I’m extremely grateful for the Australian superannuation scheme. Compound growth is the same.

Re quadratic equations, perhaps you haven’t worked on these with a pencil and paper since school but the human eye automatically does the analysis in all sorts of scenarios. It’s very interesting actually how close the brain can get to an approximate answer by pattern recognition.

Ditto differentiation, which sportspeople’s brains are constantly doing, probably without realising.

I dunno. Humans can be pisspoor with statistics. Just look at the birthday paradox

That’s true but birthdays aren’t an exercise in relative eye/brain processing. Much more of an exercise in logic.

And stats can be a bit like double entry bookkeeping: go 180 degrees from your immediate thought, and you will be right.

Exactly. There should be a risk warning on cash savings accounts. Long term cash is 100% guaranteed to lose you money.

You haven't factored in inflation. You're actually making 2.25%pa in real terms.

And if inflation and interests rates rise over the next 5 years - it might not look like such a great deal to you but because it's locked in - you can't respond.

Exactly. The 20k I invested 5 years ago is up 80% so currently £36k despite all the recent global unrest. With 5.25% compounded you are barely beating inflation. Yes, there’s risk with the stock market but over the long term, 5 years + it will always beat cash.

This thread is a bit "stone soup" .
If you start putting 200 a month under your bed you'd have a lot by 65, the interest is a minor part of it.
The problem is having the 200 pretty much every single month to get there.
200pm x 12 months x 60 years is 144k all on its own, the interest will (only) double it.
Also 144k will be worth a lot less in 60 years time, so your original 200 has been losing some of the value it's been gaining.

Lots of things are surprising about maths though, did you know that 1x2x3=1+2+3
Can you find the next number that works like that?

Exactly. And it's very likely inflation will rise so will probably make 0% real return over 5 years.

It's already included in foundation GCSE Maths.

It's looking likely if we can't get oil prices down. And interest rates will have to rise again.

Precisely this. This mentality is not only prevalent in young people, but in the general public too; it is partially cultural as people feel here entitled to buying things whilst completely overlooking the fact that they have a big fat mortgage on their shoulders that they could be overpaying off a bit at a time. People underestimate the power of mortgage overpayments which will overtime pay dividends. They will prioritise expensive cars and holidays first before paying off their debts which are sitting there compounding in interest, essentially paying double the amount of the value of the house by the end of payment plan. Bonkers really. Banks are laughing at our stupidly.

If you look at historical performance, it doubles every seven years. If you invest it, not just stick it in a savings account. So the interest is indeed a very big part over that many years

I have both. I’ve spent 25 years in investment banking and saw so many colleagues made redundant during the financial crisis, who then had to sell their shares at the bottom of the market to pay their bills. Those shares would be worth a fortune now, but they needed liquidity.

Totally agree, but my point is that most of the hard work comes from you, the regular payments are the magic, the investment gains are more of just a boost.
200 pounds a month at 0% ends up as far far more than 200 pounds a month for a year, followed by doubling every 7 years .

It's the consistent adding to the money month on month that matters the most and the gains are the icing on the cake.

Exactly. The days of 5% interests on savings accounts are long gone.

And very few people these days can afford to risk/lose £200 a month, even if they have it spare to invest.

You can get 4.68% on a flexible cash ISA with no fees at the moment
If you have a decent emergency fund, then a stocks and shares ISA is more likely to beat inflation in the long term, you might not be able to save every month but the point is that if you can save anything with a low fee stocks and shares ISA the compound growth can get inflation beating returns in the long term, but it needs to be long term, not emergency savings that you might need to dip into.
I have been in the position I couldnt afford to save anything into pensions or savings. But when and if people are able it would be useful for them to have enough education to understand how these things work. I didn't have this education from school, I did my own research and that is helpful. But it would have been nice to have more of an understanding earlier on in life

This thread has made me look more into investing, just trying to figure out what decent options I have in my country (nothing like ISAs here). I have some small investments with my two bank accounts but one is just my cash back bonus each month going into it so somewhere between 10 and 20 euros a month and the other is 10 euros a month, so not building up much with either of them (but I can afford to lose that money each month so its not so bad if the investments go down, bit different if I'm investing 300 or so euros a month which is what I'm thinking about)

Yes, but they don't do it in a "real life" understandable way. It's all about the compound interest algebraic equation which will be beyond the understanding of the least able students and even the most able may not truly see the real life application as it's all about crunching numbers within the equation.

It should be taught outside Maths lessons and not all about the formula, where students may be more interested and engaged, given that so many are alienated from formal Maths lessons because of the attitude of "I don't do Maths, me!".

Even if the savings account interest is higher than the inflation rate?

If you watch the recent episode on itvx Martin lewis showed the difference between saving on the best available savings accounts over time Vs investing into the various markets (global, s&p which is America or FTSE which is British) it showed that basically even with picking the best available savings accounts over time your money will be eroded by inflation, whereas with the investments, they may rise and fall but if you leave it for long enough it will almost always outperform inflation, leaving you with more money in real terms.
Savings accounts are important for money you need access to in the near future, but they aren't the best long term if you want your money to grow

Revolut savings pay their interest daily - so you can see in real time the impact of compounding. And by leaving the same amount there just for a few weeks, how the amount of interest starts to rise as compounding happens (I had ignored it for a couple of months and the interest always €0.43 daily, but when I looked again 3 months later, the interest had risen to €0.46 daily, just because the amount it was calculated on had risen as the daily interest was added in.)

I thought I’d add an illustration here as many posters are focusing on the ‘hundreds’ per month. If you saved £20pm for DC from being born (at 7% interest which is the average return for the S&P ) and increased your contribution at a rate of 3% per year you could have just over 10K for them, and if you could increase it to £30 around 15.5K.
not bad for a fiver a week.

Thanks. I will check out jp morgan nutmeg