Compound Interests


How big a deal is compound interests? Can I double my savings in 10 years time without doing anything with it?

Based on the current CIMB Bank Berhad Fixed Deposit interest rate (16 June 2016), by using a Compound Interest Calculator, I had calculated how much would I get in return after 10 years based on an initial RM10,000 deposit, no addition and varying the tenures of FD maturity.

From the table below,
it's clear that you cannot double your saving in 10 years time due to current low interest rates. You will need at least 7% to 8% per annum of interest rate to double your savings using compound interests.

Tenure 1mth 2mths 3mths 6mths 12mths
Interest Rate 3.15% 3.25% 3.30% 3.40% 3.70%
Total Principal after 10 years 13,696.94 13,828.17 13,890.86 14,009.38 14,380.95
Interest Gain ($) 3,696.94 3,828.17 3,890.86 4,009.38 4,380.95
Interest Gain (%) 36.97% 38.28% 38.91% 40.09% 43.81%

[20 June 2016] How long does it takes to double your initial investment with a given interest rate

Khan Academy has a very good video to show to to calculate it and an easy way to approximate it.

Basically, you can use the rule of 72 to approximate the number of years needed to double the initial investment with a given interest rate. To use the rule, you just have to divide 72 with the interest rate.
Example:

  1. 72/3.7 = 19.5 years (3.7% anually)
  2. 72/7.2 = 10 years (7.2% anually)

References, Sources and Credits:





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