Albert Einstein describes this as “the greatest mathematical discovery of all time”.
So what is compound interest?
Compound interest is all about earning interest on your interest! Compound interest works well in superannuation because it’s a long term investment. You can’t normally get your hands on your super until later in life so your super benefits from many years of compound interest.
Just say you have $10,000 and invest it at an annual rate of 10%*. Over a year it earns $1,000 interest, so you then have $11,000. If you invest it again the next year, this $11,000 then earns $1100 interest, which makes it $12,100. And on it goes. After only 7 1/2 years you would have doubled your money without doing anything!
*Annual returns can be higher or lower than 10%, and may even be negative from time to time, but the benefits of compound interest are still likely to apply to your long term super investment.