Grow Financial Federal Credit Union
July 8, 2021

Understanding Compound Interest: Making Time Work for You

You’ve most likely heard us say it before, and we can promise we’ll remind you again: start saving for retirement as early as possible. Even if your retirement is still half a century away, saving should be on your financial radar. Why? Because when it comes to maximizing your dollar, time is money.

Compound interest is your friend.

You probably know that it takes time to reach a savings goal, but you may not have considered the mathematical magic behind the savings equation: compound interest (also known as compounding interest). Basically, this means that your money earns interest, then your interest earns more interest, and then, you guessed it, that compounding keeps repeating over and over. The more time you allow for compounding to happen, the more money you may end up with.

The results are in: time wins.

Take a look at what we mean. The graph below shows two simple savings scenarios and will help you visualize the impact of time on your savings outcome.1 Same initial contribution, same monthly contribution, same assumed interest rate. The only difference? Time.

Figures quoted are for illustrative purposes only and are not necessarily indicative of past or future results of any specific investment. They may or may not include consideration of the time value of money, inflation, fluctuation in principal, or, in many instances, taxes.

Scenario 1: Saving for 20 years
Let’s say you start with just $1,000 and save $50 per week ($200 monthly) for 20 years. You could end up with about $114,500. While this is leaps and bounds better than the alternative of not saving, this amount probably wouldn’t stretch through a long retirement and may leave you with an expenses gap.

Scenario 2: Saving for 40 years
In this example, you start with the same initial amount of $1,000 and save the same $50 per week, but this time, you begin saving earlier, with 40 years to spare until your goal retirement age. Now, you may end up with about $643,500. The extra 20 years of compounding more than quintuples your total and provides a much more comfortable figure to support you during retirement.

To calculate savings outcomes based on different interest rates and contributions over time, you can use the U.S. Securities and Exchange Commission’s Compound Interest Calculator.

Our advice? Start early, save often.

Why should you start saving early? Imagine what compounding interest could do for you. Even small monthly contributions will add up over time and give compounding interest a chance to get to work. Disciplined, consistent saving habits will help you reach your dreams.

Questions? Contact a CFS Financial Advisor.

Grow has contracted with CUSO Financial Services, L.P. (CFS) to provide investment services, and your CFS Financial Advisor will help you build a plan that meets your needs.2 The advisor will look at your current spending, saving and investing, learn about your goals and priorities, make objective recommendations and support your efforts moving forward through the implementation and management of your plan.

Schedule a Complimentary Consultation

1The graph shows an estimate of how much your initial savings plus monthly contributions can grow over time, assuming an 8% interest rate and annual compounding. Remember that adjustments in any of those variables will change the outcome.
2Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members. For specific tax advice, please consult a qualified tax professional.

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