Financial Answer Center
- Time Value of Money
- The Power of Compound Interest
- Dollar-Cost Averaging
- Pre-tax, After-Tax, Tax-Deferred, and Tax-Free
- The Effects of Inflation
The following table shows why compound interest is such a great thing. Saving $50 a month earning a 6% rate of return, can give you a nest egg of $23,200 in twenty years. And in thirty years it can give you $50,500. Not bad for $50 a month.
The Beauty of Compound Interest*
|
Monthly Savings |
In 15 Years** |
In 20 Years** |
In 30 Years** |
In 35 Years** |
|
$10 ($120/yr.) |
$2,900 |
$4,600 |
$10,000 |
$14,200 |
|
$50 ($600/yr.) |
$14,500 |
$23,100 |
$50,200 |
$71,200 |
|
$100 ($1,200/yr.) |
$29,100 |
$46,200 |
$100,500 |
$142,500 |
* Calculations made from a standard Time Value of Money table.
** Assumes a 6% rate of return.
Still think you're too young to start saving for retirement? If you are 35 years old and save just $2,000 per year from now until age 65, at a 6% rate of return, you'll have almost $167,400. But, if you wait until you are 55 to start saving, you will have to save approximately $15,600 per year at 6% to give you $213,000 at age 65. It's better to start smaller and earlier, and keep it up.
