If you only learn one thing about investing, make it this. Compound interest is the reason why starting early matters more than starting with lots of money.
🎯 The Short Version
Compound interest is when you earn interest on your interest. It's like a snowball rolling down a hill — it gets bigger and bigger, faster and faster.
Let's See It in Action
Say you invest £1,000 and it grows 7% per year (a reasonable long-term stock market return).
Now here's where it gets mental. Add £250 every month to that same £1,000 starting point:
That's more than double what you put in. Compound interest gave you £70,543 of free growth.
The Two Secrets to Compound Interest
Start Early
Time is the most important ingredient. Someone who starts at 15 has a massive advantage over someone who starts at 30, even if they invest less money.
Zo invests £250/month from age 15 to 25 (10 years), then stops.
Total invested: £30,000
At age 45, that's worth £114,550 (assuming 7% growth).
Someone who starts at 25 and invests £250/month for 20 years (£60,000 total) would have... £123,456.
Zo invested HALF as much but got nearly the same result. That's the power of starting early.
Leave It Alone
Compound interest needs time to work its magic. Every time you withdraw money, you break the cycle. The longer you leave it, the more powerful it becomes.
Want to know how long it takes to double your money? Divide 72 by your growth rate.
At 7% growth: 72 ÷ 7 = 10.3 years to double
At 5% growth: 72 ÷ 5 = 14.4 years to double
Why This Matters for Zo's Journey
We're aiming to turn £1,000 into £60,000 in 3 years. Is that realistic with compound interest alone?
honestly? No. That would require 500% returns, which isn't realistic. But here's what IS realistic:
- Year 1: £1,000 start + £3,000 added (£250/month) + growth ≈ £4,300
- Year 2: £4,300 + £3,000 added + growth ≈ £8,000
- Year 3: £8,000 + £3,000 added + growth ≈ £12,000
That's more realistic. To hit £60,000, we'd need either higher returns (risky), more monthly contributions, or a longer timeline. The point of this blog is to show what's actually achievable — not sell you a fantasy.
The Ugly Side of Compound Interest
⚠️ It Works Both Ways
Credit cards use compound interest too — but against you. A £1,000 credit card debt at 20% APR becomes £1,440 after 2 years if you don't pay it off. That's compound interest working for the bank, not you.
Lesson: Compound interest is your friend when investing. It's your enemy when you're in debt.
Try It Yourself
Want to see compound interest in action with your own numbers? Use our Compound Interest Calculator.
Ready to Start?
See how we're using compound interest to grow Zo's university fund.
Important: This is not financial advice. Past performance doesn't guarantee future returns. All investing involves risk. The 7% figure used is a long-term stock market average — some years will be higher, some lower, some negative.