10/02/2026
THE POWER OF COMPOUND INTEREST
What Is Compound Interest?
Compound interest is interest that is added to the initial principal of a deposit, investment, or loan, thereby increasing the balance and, in turn, increasing the amount of interest earned or paid in the next period.
The power of compounding helps a sum of money grow faster than if just simple interest were calculated on the principal alone. The greater the number of compounding periods, the greater the compound interest growth will be. For savings and investments, compound interest is your friend, as it multiplies your money at an accelerated rate. But if you have debt, compounding interest can make it increasingly difficult to pay off.
*PRACTICAL SESSION*
Assuming you invest N1,000,000 for 5 years using a compounded interest of 37 per cent per annum
Principal Amount 1,000,000
✅ End of Year 1
(ROI N370,000) Capital N1,370,000
✅ End of Year 2
(ROI N506,900)
Capital N1,876,500
✅ End of Year 3
(ROI N694,453)
Capital N2,571,353
✅ End of Year 4
(ROI N951,400 61) Capital N3,522,753
✅ End of Year 5
(ROI 1,303,418.61)
Capital N4,826,171
At the end of 5 years, your capitall of N1,000000 would have become N4,826,171 using the power of compound interest. This is how the wealthy grow their money. Growing .money is not magic. It is a strategy that requires discipline and patience.
Compound interest is known as one of the 8th wonders of the world. It is a known strategy used by people all over the world to grow their money.
Note; In a situation where you, envisage rate might drop in the future due to the economy, you can do a one year plan and roll over every other year
This is why when you leave your money in a regular savings account, you are shortchanging yourself, and inflation gradually erodes your fund.
You can use this money-making principle to plan your children tertiary education in the next 5 years or 10 years. You can use compound interest to grow your funds for a project or for a retirement plan. You can use compound interest to mop up funds for a future business.
