Compound interest

Sparenab 9 J.

Interest on interest already earned – the most powerful effect in long-term saving. €10,000 at a 7% return grows to more than €76,000 after 30 years, without adding a cent.

Compound interest (German: Zinseszins) is the principle that you earn interest not only on the money you paid in, but also on the interest you have already received. This makes your money grow faster and faster.

Concrete example:

You invest €10,000 at a 7% annual return:

• After 1 year: €10,700 (+€700)
• After 5 years: €14,026 (+€4,026)
• After 10 years: €19,672 (+€9,672)
• After 20 years: €38,697 (+€28,697)
• After 30 years: €76,123 (+€66,123)

Note: in the last 10 years (years 20–30) you earn €37,426 – more than in the first 20 years combined. That is the magic of compound interest: the longer, the more powerful.

The rule of 72: divide 72 by the interest rate to find out how many years your money needs to double. At 7%: 72 ÷ 7 ≅ 10 years. At 3%: 72 ÷ 3 = 24 years.

Did you know? Albert Einstein is said to have called compound interest “the eighth wonder of the world”: “He who understands it, earns it; he who doesn't, pays it.” Whether the quote is genuine is disputed – but the effect definitely is real.

→ Zinseszinsrechner

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