How compound interest works its magic on investments

You need time and patience but understanding compound interest, or compounding, is the secret sauce to safer investing.

Illustration of compound interest – a man standing on stack of gold coins with a clock showing time passing.
(Image credit: Getty Images)

Start investing as early as you can to ensure you benefit from the magic of compounding, says Dominic Frisby.

Speculating in small stocks is one answer – the problem is that you risk losing your shirt. But there is another, safer option. All you need is time (lots of it) and some discipline.

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Compound interest at different rates of return
Period5%7%10%16%20%
1£1.05£1.07£1.10£1.16£1.20
2£1.10£1.14£1.21£1.35£1.44
3£1.16£1.23£1.33£1.56£1.73
4£1.22£1.31£1.46£1.81£2.07
5£1.28£1.40£1.61£2.10£2.49
6£1.34£1.50£1.77£2.44£2.99
7£1.41£1.61£1.95£2.83£3.58
8£1.48£1.72£2.14£3.28£4.30
9£1.55£1.84£2.36£3.80£5.16
10£1.63£1.97£2.59£4.41£6.19
11£1.71£2.10£2.85£5.12£7.43
12£1.80£2.25£3.14£5.94£8.92
13£1.89£2.41£3.45£6.89£10.70
14£1.98£2.58£3.80£7.99£12.84
15£2.08£2.76£4.18£9.27£15.41
20£2.65£3.87£6.73£19.46£38.34
25£3.39£5.43£10.83£40.87£95.40
30£4.32£7.61£17.45£85.85£237.38
35£5.52£10.68£28.10£180.31£590.67
40£7.04£14.97£45.26£378.72£1,469.77
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Dominic Frisby

Dominic Frisby (“mercurially witty” – the Spectator) is as far as we know the world’s only financial writer and comedian. He is the author of the popular newsletter the Flying Frisby and is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He has also taken several of his shows to the Edinburgh Festival Fringe.

His books are Daylight Robbery - How Tax Changed our Past and Will Shape our Future; Bitcoin: the Future of Money? and Life After the State - Why We Don't Need Government

Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art. You can follow him on X @dominicfrisby