The Power Of Compound Interest

Compound Interest Calculator

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Since I immersed myself in to the crypto industry during the retail rush at the end of 2017, I’ve experienced a mindset shift about saving that was brought to the forefront only in the last couple of months. Sure, I always tried to save what I could each month but putting it in to a bank with next to 0% interest that didn’t compound, not really helpful!

When I first heard the phrase “and it compounds over time“, I was like, “hmm, that sounds cool” with a long term “saving” mindset. However, it wasn’t until I really started to grasp the numbers by joining crypto lending platforms like Celsius where you start to see how that actually looks and you make some calculations. The weekly interest payments you receive on Celsius get added to your existing amount and then the interest is applied on the new total amount. Repeat this cycle each week and you have compound interest which, when thinking of the longer time frame of 20 years, can be very powerful indeed!

Calculating Compound Interest

Now, instead of you having to have a degree in economics and try to do some calculations yourselves, there’s a really handy tool that I discovered called “The Calculator Site” with some flexible variables that can help you calculate things for the long term, as well as giving a yearly breakdown and graphs.

Let’s say you only have enough to put in $1000 to begin with, with no additional regular payments each month and you are using Celsius to earn compound interest weekly at the current rate of some stable coins of 12.5% – you can check other stable coin rates on Celsius’ website. Here’s how it looks after 20 years:

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As you can see, not much happens in the first few years and you don’t double your initial deposit until the 6th year. However, after that time, your balance really starts to increase at an increasing rate and by the 20th year, you’ll have 12x your initial deposit. Not bad really!

But what if you did manage to save some each month and have some additional cash to add to this compound interest pot? Let’s say you’re able to get $100 per month freed up, here’s how your balance would change:

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By chipping away each month for 20 years, you can add some substantial compounding effects on to your balance and end up with nearly $120,000! This is of course assuming that you’re able to contribute $100 each month and the interest rate remains at 12.5%.

Turning The Heat Up With CEL

With Celsius, you can actually have a higher interest rate depending on the percentage of your portfolio held in CEL tokens. If you have enough CEL to make it in the top tier, your interest rate goes up to 15.85%! Here’s how it looks on Celsius’ calculator to compare for our first scenario of $1k deposit with no monthly additional payments in the first:

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This is about $5k more than our first scenario above which is pretty decent after 20 years from only $1,000 initial deposit right? How does it look if we’re adding $100 each month though?

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Wow! Nearly $450k (~3x our second scenario) after 20 years of chipping away and compounding interest! It’s pretty powerful stuff whichever way you look at it and it keeps the long term mindset in check. These figures are all assuming that CEL token value stays the same as what it is currently. If it goes up in value then after 20 years, who’s to say what that value might end up as!

Obviously things aren’t always stable in crypto (or anything in life as it’s forever changing) but feel free to try out some calculations for yourself and you can work out what’s needed to reach your financial goals, whilst taking a longer, more “stable” approach to crypto finances.

Have you run some compound interest calculations yourselves? Are you a long term HODLer and on Celsius or some other lending site? Let me know in the comments below!

Take care

Nicky


If you don’t yet have a Celsius account, you can register using my sign up link – you deposit $200 in your first transaction and we both get $30 in BTC, which will start earning compound interest too!

Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational and entertainment purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk. All opinions expressed in these articles are my own and are in no way a reflection of the opinions of The Bitcoin Manual

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