Everything you need to know about Compound Interest

Supercharge your savings with compound interest

Saving money is a smart financial decision, but bills, debts, and other expenses don’t make it easy.

That’s why here at NZCU Baywide we help you to make sure your money is working hard for you, and not the other way around. Our Success Saver and Online Saver accounts calculate interest daily and pay interest monthly, so that you can supercharge your savings with compound interest.

Here’s how...

What is Compound Interest?

Understanding compound interest is easy-as: compound interest is the money you earn on the interest the money you’ve deposited into your savings account has already accrued. That’s right! With compound interest, you’re rewarded twice by earning interest on your interest.

While this can help you turbocharge your savings and boost your return on investment, it can have the opposite effect if interest is compounding on money you’ve borrowed such as finance or loans.

Still confused? Here’s how it works…

When you deposit money into any savings account, you earn interest on your deposit.

For example, deposit $10,000 for five years at 1.74%, and you’ll earn $870.00 in interest over this period.

However, if your savings account calculates interest on a monthly basis like our Success and Online Saver accounts, this interest is reinvested and we then use this new amount to calculate the interest you earn the following month, and so on.

With this compound interest, you’ll instead earn $908.28, even though you didn’t make any additional deposits, meaning your savings are increasing exponentially. The longer you save, the greater the effect, and the more money you make. It’s that simple!

Simple vs Compound Interest - What's the difference?

The table below highlights how much you stand to make with an account paying compound interest.

  Simple Interest (1.74%) Compound Interest (1.74%) Additional Savings
Initial Deposit $10,000 $10,000 -
Year 1 $10,174 $10,175.39 $1.39
Year 2 $10,348 $10,353.86 $5.86
Year 3 $10,522 $10,535.46 $13.46
Year 4 $10,696 $10,720.25 $24.25
Year 5 $10,878 $10,908.28 $38.28
Year 6 $11,044 $11,099.61 $55.61
Year 7 $11,218 $11,294.29 $76.29
Year 8 $11,392 $11,492.39 $100.39
Year 9 $11,566 $11,693.96 $127.96
Year 10 $11,740 $11,899.06 $159.06

 

How to calculate Compound Interest

If you want to know how much you can expect to earn on your savings, here are a few simple and straightforward ways to calculate compounding interest.

  • Online Calculators
    The easiest way is with an online calculator, like this one.
  • The Rule of 72
    The Rule of 72 is an easy way to work out how long it will take to double your money. Simply divide ‘72’ by your interest rate, and you’ll have your answer. For example, if you have $10,000 in savings earning 4% interest, it will take 18 years (72 divided by 4 = 18) to double your money.

Increasing the benefits of Compound Interest

Time is the magical ingredient of compound interest, as the results are more impressive over longer periods of time. You can make compound interest work even better for you if you start saving as early as possible.

Interested in earning compound interest and supercharging your savings? Get started today by applying for one of our high interest savings accounts or giving our friendly team a call on 0800 229 943 and get the momentum and magic of compound interest working for you!


Do you want to save your money and earn high interest as you do so? Apply online for a high interest savings account today.