Why is Compounding Interest Important to your Future Plans?
Updated:
Find out why it pays to invest long-term.
As kids, we were told that saving money is one of the most important things you can ever do in life. On occasion, we would follow that advice then later, we would splurge most of our money away. Now as an adult, there is a very compelling reason why you should take savings seriously. That reason is called compounding interest and it’s going to change the way you look at money, savings and investing.
What is compounding interest?
Let's say you invest PHP 10,000 in a mutual fund that earns 2.5% interest every year. At the end of the year, you earn PHP 250. So, your initial investment of PHP 10,000 is now PHP 10,250.
Now, with compounding interest, here’s what happens if you keep that PHP 10,000 (your initial amount) plus the PHP 250 (earned from interest) in your investment for another 2 years.
| YEAR | Value Start of Year | Interest Earn | Value End of Year |
| 2 | PHP 10,250.00 | PHP 256.25 | PHP 10,506.25 |
| 3 | PHP 10,506.25 | PHP 262.65 | PHP 10,768.90 |
Notice the increase in the amount you earn come year 3? That’s because you’re earning interest on top of the accumulated interest earned from the previous years – hence the term, compounding interest.
Now here’s the interesting part: top-up (put in additional funds) your investment and your earnings multiply significantly over time.
How do you maximize compounding interest?
To get the most from compounding interest, consider two things:
- Time - The earlier you invest, the more you earn. Plus, the more funds you add to your investment, the faster your earnings will grow.
- Discipline - Be consistent with your investment top-ups if you want to fast-track your financial goals.
What is Manulife’s Regular Savings Plan?
The Manulife Regular Savings Plan (RSP) is a savings and investment facility that can help you maximize compounding interest. For as low as PHP1,000 a month, you can make regular contributions to your Unit Investment Trust Fund (UITF) through automated planned top-ups.
Call your Manulife Wealth Specialist today or get in touch with us here to find out how Regular Savings Plan can help you achieve your financial goals.
If you liked this article, you may find these interesting