Compound interest: what it actually does for your finances
SEK 10 000 in a savings account at 2% becomes SEK 12 190 over 10 years. The same SEK 10 000 in a global fund at 7% becomes SEK 19 672. The difference is called compound interest and it grows with every year.
What is compound interest?
When you save and your returns are added to your capital, next year’s returns come not just from your original capital but also from last year’s returns. That’s it. Simple in theory, powerful in practice.
The effect is small in the early years and large in the final ones. That’s why time is the most important factor in saving. Someone who starts saving SEK 500/month at 25 ends up with more at 65 than someone saving SEK 1 000/month from 45.
SEK 10 000 over 10 years: savings account vs global fund
Savings account (2%)
SEK 12 190
Global fund (7%)
SEK 19 672
Difference
SEK 7 482
Without returns
SEK 10 000
Calculate your returns
Enter a starting amount and a monthly deposit. Adjust the rate and time horizon to see the effect in kronor.
3 rules for getting the most from compound interest
- 1
Start early
Every year you wait reduces the effect. It doesn’t matter if you start small, just start now.
- 2
Always reinvest returns
Don’t withdraw money unless you need it. The returns on returns are what do the heavy lifting.
- 3
Keep fees low
A fund with 1.5% fees eats up a large portion of your returns over time. Choose cheap index funds with fees below 0.2%.
Platforms we like
Invest with low fees
Both Avanza and Nordnet offer cheap index funds on ISK. Links are affiliate links.
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