We could all use a little help maximizing our savings for retirement, and for many of us, utilizing the power of compounding interest could be the key. The earlier in life you begin investing for retirement, the more this strategy will work for you.
Compounding interest is when your interest earned on your savings is being reinvested as it’s earned, hence increasing the principal amount that is earning interest in future years. As this principal amount grows, so will the value of your investment. What does that mean for you? More money – and very little work involved in earning it. With Cambrian’s market-leading deposit rates and a team of investment specialists, we can help you realize the power of compounding interest.
For example, if you invest $1000 in your RRSP at 5% today, next year your investment will have grown to $1050 ($1000 x 1.05). The following year you’ll earn 5% interest on that $1050, meaning your investment will be worth $1102.50 by year two. While $102.50 may not seem like much now, imagine what can happen in 20, 30, or 40 years…that initial investment will have multiplied 7-fold – growing to over $7000 without you doing anything but reinvesting it. Add on an additional RSP contribution every year, and the earning potential is powerful. What’s more is that earnings in a registered product are tax-sheltered until withdrawal, and all contributions are tax deductible in the year the deposits are made.
Some guidelines to maximizing your savings:
1) Begin investing as early in life as you can.
2) Don’t ever withdraw the principal amount or interest earned – Let it Ride!
3) Reinvest at the highest interest possible for the risk you are comfortable in assuming.
4) Continue contributing every year.
5) Have an investment plan and retirement strategy, and stick to it!
Try out the Compounding Interest Calculator on our website at www.cambrian.mb.ca/calculators.aspx to see how compounding interest can work for you. When you’re ready to start or continue contributing to your RRSP, go online or visit your branch, and Cambrian’s staff would be happy to help you build your nest egg.