Although powerful, compound interest is a simple concept.

If a sum of money is repeatedly increased by a fixed percentage, its value becomes progressively larger over time.

By saving for the long-term, you not only earn interest on the money that you have directly contributed, you also earn interest on your previous interest.

Savings Plan

When developing your savings plan, it is important to consider that the final value of your savings is a product of the following factors:

The duration of your saving

Although it is never too late to start saving, the earlier that you start saving, the more time you allow for the magic of compound interest to take effect. The difference between the final sum after saving for 40 years compared to just five years less can be significant. Try entering different durations in to the calculator and see for yourself.

The rate of return

The rate of return that you are able to achieve can have a significant impact on the final value of your savings. Over the long-term, even a small difference in the rate of return can have a massive impact on your ultimate wealth. Again, try entering different values in to the calculator, it can be amazing the difference a couple of percentage points can make to the final sum.

The amount you contribute

Obviously it can make sense to save and invest as much as reasonably possible. How much you ultimately contribute is, however, a personal matter and it is often a case of striking a balance between enjoying yourself now and your future financial security.