Why it pays to start saving early

  • 6 December 2010
  • From the section Business

Saving a small amount of money regularly from when you start work will leave you better off than saving a bigger amount in later life.

Why? Because of compound interest.

When you save money, it earns interest.

The lump sum grows from interest being added every year or every month.

Interest added on top of that interest is known as "compound interest" - and means that the longer you save, the better off you are.

So people who leave it late - like Dave in the example above - have compounded their financial problems when it comes to cashing in their savings.

But it is worth remembering that pensions usually depend on the success of investments which, unlike savings, do not guarantee a set level of interest.

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