Compound Interest: The 8th Wonder of the World

The magic trick of saving

Put HK$100 in a savings account that pays 6% interest per year.

After 1 year, the bank adds 6% of HK$100 = HK$6. You now have HK$106.

Here’s where it gets interesting. After next year, you don’t just earn HK$6 again. You earn 6% of HK$106 = HK$6.36. The tiny extra 36 cents came from interest earned on interest.

That extra-on-top-of-extra is compound interest. It starts tiny and then goes wild.

Starting from HK$100, after 60 years you have over HK$3,000 — and you didn’t touch it. You let math do the work.

See it happen

Play with the simulator. Try:

• Starting with HK$1,000 and adding HK$50/month for 10 years at 6%.
• Then try the same thing for 30 years. Notice how the curve bends sharply upward.

The thing to notice: the curve isn’t a straight line — it bends. That bend is the whole point of compound interest. Early on, your money and the “interest” you earn are small. Later, interest alone starts earning more interest than you can add yourself.

The Rule of 72

There’s a neat shortcut for figuring out how long it takes to double your money:

Years to double ≈ 72 ÷ interest rate

• At 6%: 72 ÷ 6 = 12 years to double
• At 9%: 72 ÷ 9 = 8 years to double
• At 4%: 72 ÷ 4 = 18 years to double

It’s an estimate, but it’s surprisingly accurate. Try it in the simulator above: put in 1000, 0 monthly, 6%, 12 years — you should end up near HK$2,000.

Starting early is the WHOLE SECRET

Let’s compare two people:

Anna

• Starts saving at age 10
• Saves HK$500/year for just 10 years (HK$5,000 total)
• Then stops and never adds another dollar
• Earns 8% per year

Ben

• Starts saving at age 30
• Saves HK$500/year for the next 35 years (HK$17,500 total — more than 3× what Anna put in!)
• Also earns 8% per year

At age 65, who has more money?

Anna: about HK$231,209

Ben: about HK$86,158

Anna contributed less than a third of what Ben did, but she ends up with nearly 3× more. Because she started 20 years earlier, her money had extra time to compound on itself.

This is the single most powerful financial idea in the world.

Interest works both ways

Warning: compound interest also works against you — when you borrow money.

Credit card debt often charges 20-30% interest per year. If you owe HK$1,000 and don’t pay it off:

• Year 1: you owe HK$1,200
• Year 2: HK$1,440
• Year 3: HK$1,728

A HK$1,000 unpaid debt nearly doubles in 3 years. This is why adults stress about credit card debt.

Rule of thumb: never borrow money to buy things that lose value (clothes, snacks, toys). It’s OK to borrow for things that gain value or open up earnings (a home, an education, sometimes a business).

Practice