Compounding interest: What it is, how it works and how it can work for you -
April 29, 2022

Compounding interest: What it is, how it works and how it can work for you

Compounding interest

Once you understand compounding interest, you’ll see how it could supercharge your savings.

Here’s a quick example.

Say you can save €6,000 every year (€500 per month). At a rate of 13.5% compounded annually, in 15 years you could have almost €300,000. It would take 24 years to reach €1,000,000.

This is all because of the power of compounding interest.

And with crypto-powered earnings on Nash, interest isn’t compounded annually, but multiple times every minute!

Get the Nash app here.

What is compounding interest?

Compounding interest is like a snowball. It might start out small, but as it rolls down a hill, it gathers more snow – which lets it get bigger faster.

Literally, compounding interest means earning interest on your interest. It contrasts with simple interest, where you’re only earning on your principal deposit.

Say you deposit €1,000 and the annual rate is 10%. With simple interest, you receive an extra €100 interest every year, no matter what.

With compounding interest, this amount grows. After one year, you still receive €100. But you then earn interest on it. So in your second year, you’re earning 10% not on €1,000, but on €1,100. A grand total of €110!

Let’s look at some more examples.

Compounding interest examples

First, here’s a straightforward case: you put €6,000 aside and let it grow. We’re using a 13.5% rate, compounded annually.

Year Compounding Simple
0    6.000,00 € 6.000,00   €
1    6.810,00 € 6.810,00   €
2    7.729,35 € 7.620,00   €
3    8.772,81 € 8.430,00   €
4    9.957,14 € 9.240,00   €
5    11.301,36 € 10.050,00 €
6    12.827,04 € 10.860,00 €
7    14.558,69 € 11.670,00 €
8    16.524,11 € 12.480,00 €
9    18.754,87 € 13.290,00 €
10    21.286,77 € 14.100,00 €
11    24.160,49 € 14.910,00 €
12    27.422,16 € 15.720,00 €
13    31.124,15 € 16.530,00 €
14    35.325,91 € 17.340,00 €
15    40.094,90 € 18.150,00 €

Notice how, each year, the amount of simple interest paid would be the same. But the amount of compounding interest paid grows continually.

After 15 years, a compounding account would have €40,000. A simple account would only have €18,500. Not bad, but it feels like you’re missing out, right?

But let’s get real. Nobody just puts €6,000 in an account and leaves it for 15 years. If you’re serious about saving money, you’ll be putting cash aside regularly.

This is where the power of compounding interest really becomes apparent.

Let’s see what happens if you save €6,000 each year – just €500 per month. So, every year, your balance grows by your interest, plus another €6,000.

At a rate of 13.5% compounded annually, in 15 years you could have almost €300,000. It would take 24 years to reach €1,000,000.

Now, that’s some serious growth.

Year Balance
0    6.000,00 €
1    12.810,00 €
2    20.539,35 €
3    29.312,16 €
4    39.269,30 €
5    50.570,66 €
6    63.397,70 €
7    77.956,39 €
8    94.480,50 €
9    113.235,37 €
10    134.522,14 €
11    158.682,63 €
12    186.104,79 €
13    217.228,94 €
14    252.554,84 €
15    292.649,74 €

Getting the most out of compounding interest

Compounding interest is a waiting game. You won’t get rich overnight. But you also don’t have to do anything. Just deposit, and grow your wealth passively over time.

As we’ve seen, the gains can be significant.

And you don’t have to be rich to make it work. Just consistent and patient.

Which brings us to the key point: the longer you can wait, the more effective compounding interest is. The sooner you can start saving, the more rewards you’ll reap.

So what are you waiting for? Get the Nash app here and start earning today.

Earning compounding interest with crypto

Many consumer bank accounts don’t offer great interest rates. This is largely because of government decisions to keep rates low. Banks also like to take a hefty cut when using your money to make money.

Cryptocurrency protocols offer a powerful alternative to traditional finance. Without forced low rates, high-interest earnings with rates like 13.5% have become a reality.

You can read more about where interest comes from, and why crypto can offer such great rates, here.

Nash offers you simple access to these powerful crypto protocols. It’s as easy as depositing money straight from your existing bank account. No blockchain knowledge is required.

Earning interest on crypto investments

You can also earn interest on cryptocurrencies. Some assets, like Ethereum, MATIC and Avalanche, can generate interest through a process called “staking”. This is used to secure their respective blockchains.

Depending on the protocol, this interest may be simple or compounding.

Either way, staking crypto is a great method to get even more out of your crypto investment. Yes, you’re exposed to volatility in the market – the value of Ethereum might go up and down against the euro. But because your investment is constantly growing all the same.

Nash will soon be supporting staking for popular assets, making it as accessible as possible to users. With no blockchain knowledge, you’ll be able to purchase pre-staked Ethereum directly with cash: a crypto investment that will also generate interest.

Nash lets you manage your wealth the way you want.

Combine high-interest earnings with crypto investments and even staking, and build the portfolio that works for you.

Because that’s also the point of compounding interest. Earnings passive income means your money works, so you don’t have to.

Get the Nash app here.

You can stay up to date with Nash by following us on Twitter, Facebook, LinkedIn and Instagram, as well as joining our official Telegram group.

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