Compound interest: A powerful driver of long-term wealth

The following is general information and not financial advice or recommendation to take any action. 

In a world of volatility, compounding through income products may offer a low volatility path to sustainable wealth creation.

And, when analysing the returns of some income products like Earnr accounts, against share market performance - the results may surprise you.

How does compound interest work? 

Compounding occurs when the interest you earn is reinvested, allowing future returns to grow not just on your original investment, but also on the accumulated interest.

Over time, this creates a snowball effect - your capital grows faster, because your earnings are working for you too.

It’s simple in theory, but powerful in practice.

The following example is for illustrative purposes:

You invest $25,000 into a 12-month Earnr Term paying 7.20% per annum, and you choose to reinvest your returns annually.

Here’s how your money compounds*

• Year 1: $26,800
• Year 2: $28,730
• Year 5: $35,393
• Year 10: $50,106

This is the power of compounding - nothing fancy, but remarkably effective over time. Without adding any additional funds, the investment doubles in just over a decade.

* This example is for illustrative purposes. For simplicity, we've assumed the rate remains at 7.20% p.a. over the decade and have not factored in any tax effect^

Adding a little extra every month can produce serious results

The most important factors with compounding are time, and discipline.

By consistently adding a little more savings every month, and sticking to the plan over an extended period...you can build a serious growth engine to help you get to your goal.

This could be the difference needed to attain your objective (for example owning your own home)...years quicker.

Let's see how that hypothetical $25,000 put into an Earnr Term account at 7.20% per annum, grows over 20 years if you added $390 a week as well as let compounding do it's work.

Here’s how it looks*

• Year 1: $47,916
• Year 2: $72,538
• Year 5: $157,957
• Year 10: $348,338
• Year 20: $1,011,296

Over 20 years, you could turn $25,000 into over $1,000,000.

* As we mentioned earlier, this example is for illustrative purposes only. For simplicity, we've assumed the rate remains at 7.20% p.a. over the period and have not not factored in any tax effect^

This technique doesn't require you to become a stock market genious, take big bets, or take on high risk - it just requires consistency, structure, and time.

How Earnr supports this strategy 

Earnr’s products offer:

• A reliable alternative to volatile growth assets
• Defined returns and capital preservation, backed by Institutional Australian Bank Deposits and secured Australian property.

Remember, always read the product disclosure statement and target market determination, and speak to your advisor to make sure Earnr is right for you.

If you have any questions about how our accounts work - book a call with an Earnr Account Specialist here.

The information in this article is intended to be factual though may also contain the opinion of the author. Whilst every effort has been made to ensure accuracy, we take no responsibility for any errors or omissions. Any opinions are those of the author alone and not a recommendation to take any action or obtain any product. You should consider whether this information is appropriate for you and obtain independent advice before making any decisions.

‍