Get Rich Through the Power of Compound Interest

Suppose that you hit the jackpot by acquiring $100,000 from a bonus, inheritance, stock options, the lottery or whatever. If you decided to invest the money and let it grow rather than spend it, how much money could you accumulate in the next 10 to 30 years?

Let's assume that you invested the entire $100,000 in an ultra safe certificate of deposit that paid a five percent annual interest rate. After 10 years your $100,000 would have grown to $162,889 and after 20 years you would have $265,329. If you kept renewing the five percent CD for 30 years, you would accumulate $432,194. These figures demonstrate the power of compound interest which lets you earn interest on interest so after many years of earning money on money you will accumulate a very large nest egg.

If you were willing to assume some risk to perhaps earn a higher return, you could invest your money in stocks. A seven annual return would give $196,715, $386,968 and $761,225 after 10, 20 and 30 years respectively. So the potential payoff of your riskier stock investments is significant higher than the CD returns. But stocks can go down in price so with any stock investment you are not certain of your returns.

The next chart shows the rewards of letting your money grow over time. Notice the large difference of accumulated dollars between a five and seven percent return, particularly as you let the investments grow over time.

The key to making you nest egg grow, no matter what investing option you select, is to hold the money for years and let compound interest work its magic. Patient investors usually end up with lots of money.


Compound Interest Calculator

Use the Compound Interest Calculator - Getting Interest On Interest to see how your money will grow for selected rates of returns and durations.

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Updated December 17, 2007.