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The forgotten joys of compound interest

A high interest rate environment has different effects on people, depending on their circumstances. For savers, the return of higher rates after so many years has clearly been a welcome development. That said, there’s undoubtedly a whole generation which has only ever known low interest rates and therefore is largely unaware of how saving money can also play a role in growing wealth, not just covering specific expenses. In particular, the words ‘compound interest’ have largely been forgotten over the first quarter of the 21st Century. In this article we will take a closer look at what compound interest is and its forgotten joys.

To begin with, let’s explain what compound interest is. Essentially, it is the interest on savings which is calculated both on the initial sum deposited and the accumulated interest paid in previous periods. Essentially you are earning interest on top of the interest you have already earned.

Compounding, therefore, multiplies your money at a faster rate and the more often an account pays interest, the greater the compound interest will be. This ability to grow your money faster can have a positive impact on your finances, especially over the longer term. In fact, the earlier you start saving the more time your money has to compound. This has a dramatic impact on the final amount saved. Even small regular contributions can grow substantially over many years due to the compounding effect.

Another benefit of compound interest, especially when interest is earned at very regular intervals, is that it encourages consistency in savings. When you can see your money growing you are more likely to remain committed to saving for the long term as even small regular contributions start to add up. It encourages good financial habits and helps you in your journey to financial freedom.

A higher interest rate environment and the ability to compound earnings is also one of the tools you can use to counter the impact of inflation. Inflation erodes the purchasing power of money over time, something which compound interest can mitigate against by helping you to grow your money faster.

The MeMax Savings Account

If earning interest which is compounded monthly sounds like a good idea, then MeDirect has the answer for you. The MeMax Savings Account, in fact, offers a 2 per cent per annum interest rate paid and compounded monthly. You can deposit up to €2,000 into the account each month, up to a maximum balance of €50,000. What’s more is that is an instant access account which means you can withdraw money whenever you want. Click here to find out more or open a MeMax Savings Account.

MeDirect Bank (Malta) plc is licensed to undertake the business of banking in terms of the Banking Act (Cap. 371). The Bank is a participant in the Depositor Compensation Scheme established under the laws of Malta. The MeMax account is available in Euro and rate quoted is gross of tax, paid on a monthly basis and is compounded. Account holders can deposit up to €2,000 per month up to a maximum account balance of €50,000.

Join MeDirect today to access the tools you need to put your money to work on your own terms.

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We strive to ensure a streamlined account opening process, via a structured and clear set of requirements and personalised assistance during the initial communication stages. If you are interested in opening a corporate account with MeDirect, please complete an Account Opening Information Questionnaire and send it to corporate@medirect.com.mt.

For a comprehensive list of documentation required to open a corporate account please contact us by email at corporate@medirect.com.mt or by phone on (+356) 2557 4444.