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!

Obviously any saving helps but I do think the difficult part is having the ability to leave that money alone for decades. My dcs investments could be 1million at 60 if untouched for all that time but realistically a chunk of that money will be used to give them a house deposit much earlier.

How are the second and third tipping points different? Surely you can retire at tipping point two, when the return beats your salary?

Don’t forget the ‘management fees.’

These can be as low as 0.15% if you just set and forget and don’t opt for active management. Definitely check though - my auto pension defaulted to a 1.25% fee platform. If it doesn’t outperform the market to that degree, better picking a lower fee one

There's a place for cash isas and buying a house in the next few years is one of them and emergency funds. Stocks and shares ISAs should only be used for money you can leave alone for at least 5 years preferably more. It's not a case of one or the other being best, they have their own positives

Yes, agreed. When it comes to compounding though, with a cash ISA it will be very very slow. It is not the tool for long-term wealth building, great for house deposits and emergency funds.

Just a word about "stock market always pays out" ...

I started a 10 year S&S ISA in 2001. After seeing the dotcom crash in 2001 and the Global Financial Crisis of 2008, when it matured in 2011, it was just a tad more than the £3,000 that had been invested. just over £3,200 from memory.

Don't worry - the salesperson got their commission.

Probably due to high management charges/fees. 1% or 2% doesn't sound much but it erodes the gains. Best to shop around because you can get funds with management fees as low as 0.1%. You sound as if most of your gains paid for the salesman commissions. You could have avoided that by doing your own research rather than paying someone else to do it for you. It's always going to cost more when you get someone else to do anything for you.

Fixed term investments in S&S is also to be avoided as you don't have a timing choice as to when to cash in. Far better to have an "Open ended" fund where you can cash in at your convenience. Had you been able to leave your fund invested for a few more years, you'd have made a much bigger gain.

Back then things were a little different - there were no easy platforms to trade shares easily and cheaply and financial advisors were often a bunch of unregulated cowboys taking massive cuts of commission.
I remember wanting to invest £2000 in the Irish economy - we asked our broker to set it up - they came back with an investment suggestion, but they had not been asked that question before and so research took longer than usual and the bill for advice came to £1500 for a £2000 investment. I challenged the bill and after some discussion they agreed that we should have been consulted beforehand - we ended up paying £500 for the advice - it was a painful lesson. Nowadays I don't go near advisors, I trade on investengine and interactive investor and our fees are incredibly low.

There weren't the online platforms, granted, but there were lots of ways of direct investing without salesmen involved. You could deal by post or by phone. I've never used a salesman/commission agent and started investing (directly) in the 1980s!

Financial advisors started to be more closely regulated/monitored as far back as the early 90s. I know. I worked in an accountancy practice back then that was heavily into advising on pensions in particular, but also on mortgages/endowments etc. It was a massive task to get our files in order ready for the new regulations and compliance checks/file checks that came in during the early to mid 90s. Thankfully, we were careful with advice from as far back as the mid 80s, so the file work we had to do was more a matter of organising the paperwork, risk warnings, client confirmation letters, etc. - it was all there but just not neatly organised in the files, so we were fine, and even better was that we always repaid the commission received back to the client and just charged for our time, so there was no question of mis-selling etc.

By the late 90s and early 00s most advisers were compliant and there were few cowboys, and the regular monitoring visits would pretty quickly stop the cowboys. Yes, obviously there are still cowboys today, as there are in any profession/industry, but the whole industry was pretty much cleaned up in the 90s and 00s.

Compound interest isn't "rare". It's when you leave things alone and "simple" interest compounds. Completely normal for long term savings.

Do parents really not teach their children this when they go to open their first bank account? To me this is like not teaching your child to brush their teeth or to wash a dish.

I've been investing since TSB was floated in 1986. The expert advice has always been "stocks and shares beat interest over time" - hence the wide boys flogging fiance products (who remembers endowment mortgages).

Now I hear is gold that "always wins over time".

Rather tellingly the best investment I ever made was vaguely accidental. But it's return was about 1,000x over 10 years ....

If the parents don't know this stuff, they can't teach it to their kids. That's where schools come into play. They need to "fill the gaps". There's no one else to teach kids if parents can't unless the schools do it. When you have generation after generation of kids who've not been taught things, and therefore can't teach their own kids, the problems in society just get worse and worse.

Interesting that you think it was pretty much cleaned up in the 90s and 00s.

The FSA seems to differ in its opinion and went on further to introduce accreditation in 2013 through the Financial Services Act 2012.

Luckily people have access to more information online nowadays . That's not been good in some ways, there's plenty of people trying to tell you to invest in a certain single stock. But there's also the ability to invest in low cost ETFs and see how these have performed over time Vs inflation and people can make up their own minds. You'll always have the big wins and the big losses with picking individual risky stocks, but i think most people would feel more comfortable investing in the overall market
There will always be snake oil salesman. I think it's always been the case that you should treat people who say you can earn big money quick with suspicion

Interesting that you think it was pretty much cleaned up in the 90s and 00s.

Plus ca change and all that.

As long as there is a steady supply of people who didn't listen at school and who now think they don't need to, there will always be scammers and the scammed.

Myself and DH manage our own
.he even took his pension and moved it into a sipp so he has control .

We don't trust nor need a manager no one does.

Also they talk about risk and low risk usually meaning a balance between bond and equities /shares most of us should be so called high risk in shares.

On your behalf your salesman made a bad investment for you and you possibly cashed out at the wrong time .

Compared to the basically non regulated sector in the 80s, it was cleaned up an awful lot. As I said, there were/are still cowboys, but nothing like it was in the 80s.

We also now have better protection due to the FSCS.

My 16 year old is starting a pension at 18! He loves compound interest, helped by the fact it was also covered in school briefly during lifestyles and maths. Wish my parents had been educated enough to know about it and tell me to do the same.

CharlotteCollinsneeLucas mean, sure, if you've got £200 spare each month to save, that's great. And if you can find a savings account offering 5%, also great“

so not a savings account but a sipp or stocks & shares ISA which is invested in a global tracker , and yes shares do go up & down but over all they go up over a period of 10-20years adding the compounding

Which seems quite decent when you think you have contributed £72k of that final figure. It is, however, actually much more complicated than that. Due to inflation, that £163k will not buy you in 30 years what £163k buys you in today’s money. The real question is how best to invest to beat inflation.

It's the secret to wealth. Everyone should know the math behind compounding. I'm paying into a pension and ISA for my kid because the power of compounding will create a huge cushion for their future. Even small amounts grow massively.

If you save £50 a month into a pension for your child until age 18, and then stop, and it grows at 7% a year (a historically valid assumption), it would be worth about £20,400 at 18 but about £285,500 by age 57 -- that's the power of compounding!

I've got several spreadsheet templates set up to discuss with clients etc. Some are for savings/investments/pensions to highlight the massive benefit of regular investing from the earliest time possible, others to highlight the benefits of making overpayments on mortgages, others to highlight the differences between paying off the minimum credit card payment or the full amount, or the benefits of converting an overdraft into a loan, and the latest suite are for student loans. I find them fascinating as do my clients. The overall differences over 10-20-30 years arising from very small incremental changes from early years is spectacular whether you're a saver or borrower. Very few people take it on board until they see relevant numbers (specific to them which they can relate to) in graphical format highlighting the long term benefits then it's like switching on a light switch as they buy into it. I've had some of my clients for 20-25 years and even now, some of them make reference to those spreadsheets I showed them a couple of decades ago which literally changed their mindset about debt/savings. I didn't bore them with the detail behind it, i.e. the compound interest equations, etc., but just showed them the "highlights" which was often tens of thousands, if not hundreds of thousands of differences made by relatively small changes if done consistently over a long period of time.

This thread has been interesting, and while I was the voice of scepticism in the early posts, I did say I wanted to be proved wrong - and I've come back to say thank you to whoever it was who mentioned Rebel Finance School. I'm halfway through the course and excited to learn about investing, having never thought it was for me. (It probably wasn't for me up to now, I've only just got my debts cleared and emergency fund in place.) It's a great resource!