Maximising Compound Interest: Tips for Growing Your Wealth in NZ

Saving is a crucial part of using your money wisely, no matter how much money you have or what investments you’ve made. With compound interest, your money can make money for you, empowering you and other NZ savers to gradually build wealth over time. 

What Is Compound Interest?

Two of the main kinds of interest that you’d deal with are simple interest and compound interest. Simple interest is one that you’re most likely already familiar with - this interest is earned on your principal amount, or the original amount that you invested.

Compound interest differs from simple interest in that you don’t just earn money on your principal; you also earn money on the interest from the principal. Essentially, you’re making money from the money you make you earn interest on the money you put in and the interest it builds.

For example, let’s say you save $1000 and you earn 10% interest on that amount every year. After a year, you will have your principal ($1000) plus your interest ($100) for a total of $1100. With compound interest, you will now earn interest on $1100, not just the original $1000. After another year, you’ll have $1210 instead of $1200.

This may seem like a small change at first, but just imagine your savings after a longer period - with compound interest, in 10 years, your original $1000 will have grown to about $2594. With simple interest, it would have been $2000. If you keep adding to your savings, you can watch that money grow even more. 

Your interest rate and the times your interest is compounded every year (which can be annually, biannually, quarterly or monthly) will affect your gains. Use this helpful compound interest calculator for NZ savers to see how different situations could go.

How To Make The Most Of Compound Interest

Compound interest is a fantastic opportunity for people to make more money. The growth may be gradual, but patience and planning are two core values for smart financial management - your future self will thank you. 

What can you do?

Start Early, Give Your Wealth Time To Grow. The best time to start investing is yesterday; The second best time is today. Start saving sooner rather than later, even if those investments and savings accounts are small at first. We all start somewhere, and even baby steps are progress. 

Starting now can lead to better results in the future. Look into opportunities now, and encourage others to do the same. 

Make Small, Regular Contributions. You don’t have to start big, and not every contribution needs to be a small fortune. Even small additions are good, especially if you do them regularly. Consistency is key.

Some Kiwis make it a habit to regularly add to their savings accounts at specific times. For example, you could make a contribution from your pay every month, even if that contribution seems minuscule. After a year, you may be surprised at how much you’ve added to your account - and even more surprised at how much compound interest has earned you, just for being proactive. 

Pick The Right Investment Opportunities. There are plenty of opportunities for Kiwis who want to grow their wealth. You could use your KiwiSaver strategically, choose high-interest savings accounts or consider index funds.

If you’re not sure where to start, talk to a financial adviser about your situation. We at Future Wealth will be glad to talk about KiwiSaver funds, investment pathways and so much more.

Don’t Spend All Of Your Earnings Right Away. Seeing the number in your bank account rise is certainly exciting, and you may have heaps of things you want to buy. But you should refrain from taking all of that money out of your bank account right away. Compound interest lets NZ savers earn money on their interest, so if you take money out, you’re earning less.

You can keep that money in your account so it continues to grow. Or, you can take that money and reinvest it. Spending money isn’t bad, as long as you do so smartly and ensure you can keep the compounding cycle going. 

Be Patient. One of the most important pieces of advice you’ll get for any kind of investment is to be patient. Trust the process and let compound interest do its thing, while continuing to look into other investments when appropriate. 

Make regular deposits, use your money wisely and let your wealth grow. 

Let’s Improve Your Finances Together At Future Wealth

Finances can be stressful, but they don’t have to be. Let us at Future Wealth help you understand your situation and your opportunities better, empowering you to make the right choices for you and your family. Get in touch today if you’re interested in compound interest or any of our other financial services.

Call us on 027 628 8010 or reach out online to send us a message or book your free chat.

Set yourself on the right path with Future Wealth.