Compound interest is interest calculated also on interest that has already accumulated. In savings it accelerates growth. In debt, it is what turns a small loan into a big one.
In savings
You saved NIS 100,000 at an annual return of 5%: - After 10 years: about NIS 163,000. - After 20 years: about NIS 265,000. - After 30 years: about NIS 432,000.
Notice: in the last 10 years the amount grew by more than NIS 160,000, more than the starting amount. That is the power of time.
In debt
Overdrafts, credit cards and expensive loans work on the same principle, but against you. A high-interest debt that is not repaid grows very quickly. Getting out of overdraft
In a mortgage
The longer the term, the more total interest you pay. A mortgage of NIS 1,000,000 at 4.6%: - Over 20 years – about NIS 531,000 in interest. - Over 30 years – about NIS 846,000 in interest.
The conclusion
- Start saving early – even a small amount.
- Close expensive debts quickly.
- Do not extend a mortgage unnecessarily.