Compound interest
When it comes to saving it’s never too early to start. One of the many advantages of starting early is the effect of compound interest.
How does compound interest work?
Compounding is when you reinvest the interest you earn on your investment. If you continue to do this over a few years, you’ll be earning interest on your interest on your interest.
Over the medium to long term, compound interest can be an effective means of accelerating the growth of your savings and building your retirement nest egg.
The earlier you start saving for your retirement, the more savings you will accrue and the easier it will be to reach your retirement goals.
Leave it too late, and you will have a mountain to climb.
Case study
Take Carol and Jim, who are both aged 40 and intend to retire at age 60. Carol invests $1,000 per month for 20 years. Jim invests $2,000 per month – but does not start until he is 50.
Assuming their investments generate 8 per cent growth per annum after tax, despite Carol and Jim both contributing $240,000, Carol ends up with significantly greater savings due to the effects of compound interest.
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As at 30th March 2011, AXA Asia Pacific Holdings Limited and all of its Australian and New Zealand subsidiaries ceased to be members of the Global AXA Group and became members of the AMP Group.
