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The Power of Compound Interest

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Compound interest means when you earn interest on your principal investment, as well as on interest added to the principal you may have accumulated.

The power of compound interest is so famous since Albert Einstein time when he called it the 8th Wonder…memang dasyatttttt

How compound interest works? Compound interest means when you earn interest on your principal investment, as well as on interest added to the principal you may have accumulated. The addition of interest to the principal is called compounding.

With this compounding rule, it means the earlier you start saving, the greater the interest accumulated on your original investment. The power of compounding can make assets grow much faster.

It can work for you if your invest. However, it will work against you if you borrow such as overdraft loan or credit card loan. You probably end up paying more interest if you delay paying the compounded interest loan.

Back to how compound interest could make your assests grow faster, this can be explained with the example below.

There are 2 guys invests their money to an investment that giving interest of 8% per annum.

  • Person A: Invest RM3k per year started at age 18 and stopped at age 27…total investment is RM30k
  • Person B: Invest RM3k per year started at age 28 continuously until retired…total investment is RM84k

It is clear that Person B invested more money than Person A…will that mean Person B is having more money when both of them retired at age 55?

Look at the graph below and you will know the answer. Even though Person A only invested RM30k, which is RM54k less than Person B, the total investment for Person A has become RM405k, that is RM100k more than the Person B..no wonder Einstein called it the 8th Wonder.

so PLEASE! PLEASE! PLEASE! let your children know how important to start saving NOW…and let it compound!

19 Responses to The Power of Compound Interest

  1. Wazir says:

    ‘Person A: Invest RM3k per month’ … yearly kan?

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  2. iZwaN says:

    ha ah la kan…3k tue per year kan?
    then..sy kurang jelas lg ttg compound interest nie..
    duit yg di’invest’ tue..di masukkn ke mna?
    ke akaun simpanan biasa?

      (Quote)

  3. pokoksawit says:

    Bro Khairul, saya nak dapatkan blanket approval la… apa-apa posting bro, saya nak email kat kengkawan dengan link kat BH…

    Artikel power-power….

    Bole tak…?

    Thanks….

      (Quote)

  4. ibut says:

    pelaburan per yg memberikan compound interest camni ek?ASB?

      (Quote)

  5. Wazir says:

    Izwan, Ibut

    Banyak insvestment vehicles yang kasik compounded interest. Even normal saving account pon…..cumenye:

    Saving account kasik ~3% dividen
    ASB kasik ~8% dividen

    Compund interest means interest made that will compound in a given time.

    Example: You inevested $1.00. Intesrest of 10% compounds daily (dalam example Khairul tu yearly compound).

    Day 1: You invest $1.00
    Day 2: 1.00 plus your interest of .10 = 1.10
    Day 3: 1.10 plus interest of 10% (.11) = 1.21
    Day 4 : 1.21 plus interest of 10% (.12) = 1.33
    Day 5: 1.33 plus interest (.13) = 1.46
    and so forth

      (Quote)

  6. iZwaN says:

    ooo…mcm tue..tima kasih atas penerangan… :)

      (Quote)

  7. jiming says:

    sy dh buat invest (loan asb 30k) utk anak starting umur 1 year lg….for 16 thn. estimated 80K-90K boleh dpt when dia nk masuk U nnt

      (Quote)

  8. Wan says:

    Mmg Hebat. Its all about time. Walau invest sikit, tp bermula awal lebih baik drpd bermulalambat tp nk invest byk2…xterkejar nnt…

      (Quote)

  9. Khairul says:

    betul wazir…per year actually…post above updated…btw, lama tak nampak

      (Quote)

  10. Khairul says:

    pokoksawit, berkenaan nak email post dari BH…silakan, sy takde halangan…lebih ramai celik financial, lg bagus…mana tahu ade kenkawan kat luar tu yg ade idea2 bernas…boleh share sama

      (Quote)

  11. Wazir says:

    Khairul,

    Ade je slalu cumenye jadi silence reader. Ade lubang2 property menarik kat KL nun roger2 ek. He He He

    Jiming,

    Labur 30k untuk anak tu masuk account mane? Account parent nye ke? rase nye account remaja 10k je.

    Sape2 ade info camner nak upkan limit 200k ASB x? dulu2 ade terbace kat mane tah boleh buat tp tak tau procedure.

      (Quote)

  12. iZwaN says:

    Assalamualaikum…
    just nk bertanya..
    mcm mana pengiraan tue dibuat?
    means..how come the return of investment would be 405k?
    while the other just 309k?
    maaf la…sy masih br dlm ‘dunia’ nie.. :)

      (Quote)

  13. Sony says:

    Salam….

    just to share ASB loan dengan easy RHB. First 5 yrs, hanya bayar minimum interest shj. So, boleh afford loan yg lebih tinggi supaya dividen dapat berganda.

    Contohnya;

    Let say kita hanya sanggup bayar below Rm 500, maka dgn maybank maximum pinjaman 60K shj atau kena extend jadi 25 yrs.

    Maybank/CIMB/etc;

    Loan – 60,000 – bulanan dlm 465 (15 yrs)

    Dividen 60,000 x 8% = 4800. After 5 yrs maybe dlm 85K (x keluarkan dividen)

    Easy ;

    Loan – 100,000 – bulanan dlm 450 (5 yrs) + 1000 (10 yrs)

    Kalau Easy, int rate tinggi sikit, tapi dgn prinsip com interest, maka after 5 yrs ASB ada 145K dengan syarat x keluar dividen (walaupun 100K masih dlm pinjaman bank). So assume 8% div x 145K = 11600 (boleh top up bayar bulanan yg 1000/mth tu)….

      (Quote)

  14. jiming says:

    wazir,

    guna wife punya yg blom penuh asb…

    psl ASB > 200K…boleh check dulu dgn PNB or ajen asb brape max acct asb tuh bleh masuk…

    cm i dh 225K…but most in OD

      (Quote)

  15. fauzan says:

    berkaitan dgn post ni. ada advice x cara simpanan terbaik tuk tabungan pendidikan anak2. ambil contoh BSN Prudential 3 dalam satu tu. memang bagus pakej tu tapi kalo anak lebih dari 2 parak gak nak kommit beratus2… ada x tabungan yg tiada komitment(simpan ikut suka) tapi berserta takaful insuren tuk perlindungan kesihatan sekali. dividen atas tabungan tersebut juga ada? tolong advice sikit….

      (Quote)

  16. ani says:

    mcamana nk penuhkan asb?? saya rase easy rhb da buka loan asb sampai 200k.bayar bulan2 untk 5 tahun jauh lebih murah dari bank lain…

      (Quote)

  17. budak kecil says:

    Pengiraan Loan ASB ni macam kira Loan Rumah ke macam kira Loan Kereta?

      (Quote)

  18. Khairul says:

    budak kecil, pengiraan Loan ASB guna method reducing balance monthly rest…sama mcm loan rumah…loan kereta tu fixed rate

      (Quote)

  19. Khairul says:

    ani, easy rhb tu bayar utk interest saje bagi 5 tahun pertama…principal tak kurang…sbb tu murah

      (Quote)

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