Compound interest: turn your lunch savings into 200.000€

A six-euro takeaway sandwich or a twelve-euro canteen plate probably triggers the same thought each time you pay for it: tomorrow, or next Monday, you will bring your own lunch instead. That small resolution is worth keeping, because of what compound interest can do with it.

Prepare your lunch box the night before, or better, recycle last night's leftovers, and save, let’s say, on average 8€ a day, twenty days a month. Reinvest that amount every month in a diversified ETF, a fund that spreads your money across thousands of companies instead of betting on one stock. Stick to the habit, month after month, year after year. At an annual return of 8%, interest starts generating interest of its own, and the snowball effect takes hold.

• After ten years, the compound interest you have earned overtakes the amount you invested along the way.
• After thirty years, you have built up 238.457€:
  • 57.600€ that you invested, and
  • 180.857€ in compound interest, the quiet reward for your lunchtime savings.

The day your interest overtakes your savings

Are packed lunches not part of your routine? Look closely at the expenses that tend to slip under the radar: subscriptions you no longer use or compare your electricity and phone providers. Once you have trimmed one of these costs, reinvest the freed-up money straight away, rather than letting it sit in your account.

The amount may look modest in the first few years. But invest it regularly, over the long term, and across a diversified portfolio, and within about a decade, compound interest will inevitably account for a larger share of your gains than the money you put in.

The magic of compound interest

The takeaway sandwich, the canteen plate, the few euros saved by switching phone plans: none of it looks like much on its own. Compound interest turns this seemingly negligible saving into a capital that simple accumulation could never reach.

The chart above shows exactly how this works. Past the tenth year, profit grows exponentially, because each interest payment gets reinvested and starts generating interest of its own. The snowball grows bigger every year.

Two factors decide how fast it grows.

• The rate of return: interest is calculated on the entire capital already built up, interest included. Even a small difference in return gets recalculated every year, on an ever-larger base. On the same monthly saving of 160€ over thirty years, an annual return of 6% instead of 8% does not shrink the final capital by two percentage points. It cuts nearly 78.000€ off.
• Time: the longer the capital stays invested, the more years accumulate during which interest generates further interest.

Choosing ETFs or index funds with the lowest possible fees works directly on the first factor. Every percentage point saved in fees, too, compounds over the long run.

Easyvest puts compound interest to work for you

Easyvest lets you build on this regularity with low-cost, diversified ETFs, so every small saving works without extra effort on your part. To keep that effort to a minimum, Easyvest lets you set up recurring investments.

Invest this way, and stay invested over time, and you earn interest not only on your initial capital but, more importantly, on all the interest already accumulated. This long-term compounding turns sums that once looked negligible into real fortunes.

With the Easyvest simulator, see what your sandwich savings could be worth, once time has done the work for you!