By Sam Alex, civil engineer · About the author
Albert Einstein probably never called compound interest the eighth wonder of the world, but the quote survives because the maths is genuinely surprising. The key idea is simple: you earn returns on your past returns. Given enough time, that snowball does more of the work than your own contributions.
*General information only, not personal financial advice.*
Two savers, ten years apart
Both savers put $200 a month into an investment earning an average 7% a year, and both stop at 67.
| Alex (starts at 25) | Jordan (starts at 35) | |
|---|---|---|
| Years investing | 42 | 32 |
| Total contributed | $100,800 | $76,800 |
| Balance at 67 | $608,700 | $285,700 |
Alex contributed only $24,000 more but finished with more than double the balance. The extra ten years of compounding at the end is where most of the difference comes from.
To catch up, Jordan would need to save about $426 a month, more than twice as much, just to match Alex.
Why time matters so much
At 7%, money roughly doubles every 10 years (by the rule of 72: 72 ÷ 7 ≈ 10.3). A dollar invested at 25 has about four doublings before 67. A dollar invested at 35 has about three. That one extra doubling is worth as much as everything before it.
You can test your own numbers with the compound interest calculator for a lump sum, or the superannuation growth calculator for regular contributions.
What this means for super
Australian employers pay the Superannuation Guarantee (12% of ordinary earnings from 1 July 2025) into your super, so compounding is already working for you. Three things make a big difference over a working life: - Fees: a fund charging 1% a year more than another can cost you a six-figure sum by retirement. Compare fees on the ATO's YourSuper comparison tool. - Investment option: younger members with decades to go often choose growth options, accepting ups and downs for higher long-term returns. That's a personal decision, so get advice if you're unsure. - Small extra contributions early: salary sacrifice of even $50 a week in your twenties can be worth far more than the same amount in your fifties.
Compounding works against you on debt
The same maths runs in reverse on credit cards and personal loans. A $4,000 card balance at 20% p.a., paid at $100 a month, takes about 5½ years to clear and costs about $2,650 in interest. Paying down high-rate debt is effectively a guaranteed return equal to the interest rate, which is hard to beat by investing.
Real vs nominal returns
The figures above are in future dollars. With 3% inflation, $608,700 in 42 years buys what about $176,000 buys today. To see results in today's money, use a "real" return, which is your expected return minus inflation (e.g., 7% − 3% = 4%).
Five practical takeaways
- Start now, even with a small amount. Time can't be bought back later.
- Automate it. A regular transfer on payday removes the temptation to skip a month.
- Keep costs low. Fees compound just like returns, only in the wrong direction.
- Clear high-interest debt first.
- Stay invested through the ups and downs. Missing the best recovery days after a fall does lasting damage to long-term returns.
Frequently asked questions
How long does it take money to double?
Divide 72 by the annual return. At 6%, about 12 years. At 8%, about 9 years.
Is it too late to start investing at 40?
No. You have fewer years of compounding, so you'll need to contribute more, but 25+ years is still a long time for money to grow.
Does compound interest work on super?
Yes. Super earnings stay in your account and are reinvested, so they compound until you retire.