Anyone can make their savings go a long way over time, if you know how to make compound interest work in your favor! There’s no need for big numbers; even a modest amount of money can grow significantly when you park it in your savings, given enough time. You can choose to have funds automatically transferred each payday or stash a lump sum – whatever works best for you. Then, simply let compound interest work its magic and watch your money grow!
Let’s go over a couple of examples so you can see just how it works. Here’s a look at two ways your savings can grow:
Automate Your Savings Each Payday
If you don’t have a sum of money you can afford to park for a long period of time right now, you can grow your savings gradually. Automating a small part of your paycheck to go into a savings account can grow your small contribution to a sizable sum over 30 years. Even as little as $5 can snowball into significant funds over time. Here’s an example from a bi-weekly pay period:
| Bi-weekly Savings | Annual Savings | Total Savings Over 30 Years | Total Savings with Interest (5% APY) Over 30 Years |
|---|---|---|---|
| $5 |
$130 | $3,900 | $8,859.53 |
| $10 |
$260 | $7,800 | $17,719.06 |
| $15 |
$390 | $11,700 | $26,578.58 |
| $20 |
$520 | $15,600 | $35,438.11 |
| $25 |
$650 | $19,500 | $44,297.64 |
| $30 |
$780 | $23,400 | $53,157.17 |
| $35 |
$910 | $27,300 | $62,017.70 |
| $40 |
$1,040 | $31,200 | $70,876.22 |
| $45 |
$1,170 | $35,100 | $79,735.75 |
| $50 |
$1,300 | $39,000 | $88,595.28 |
Note: These examples are for illustration purposes assuming consistent consecutive contributions with a persistent 5% Annual Percentage Yield (APY) over the course of 30 years, compounded annually.
Growth of a Share Certificate
Now, let’s look at how a Certificate Account (like a CD at a bank) with a one-time contribution of $500 can grow over 30 years. If you have some money to put aside into a Certificate without causing yourself financial strain, this method of growing your savings might appeal to you:
| Initial Contribution | APR | Term in Years | Value |
|---|---|---|---|
| $500 |
4.5% | 1 | $522.50 |
| $500 |
4.5% | 5 | $623.09 |
| $500 |
4.5% | 10 | $776.48 |
| $500 |
4.5% | 15 | $967.64 |
| $500 |
4.5% | 20 | $1,205.86 |
| $500 |
4.5% | 25 | $1,502.72 |
| $500 |
4.5% | 30 | $1,872.66 |
Note: These examples are for illustration purposes using a specific rate, dollar amount and term with an annual compound earnings rate. Other factors, such as penalties for early withdrawal of funds, may apply and will impact your actual earnings.
As you can see, compound interest is a very powerful financial concept that you can use to your advantage. Starting with one sizable injection of funds into something like a Certificate Account, or automating a small part of each paycheck into a savings account can both result in significant earnings through interest over time. As the saying goes, the best time to start saving was yesterday – the second-best time is now!
NMLS #562301 
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