Compound interest is one of the most powerful tools in personal finance, yet it’s often misunderstood or underestimated. At its core, it’s interest on your interest; meaning your money grows not just from what you put in, but also from what it earns over time.
Let’s break it down with a quick example.
If you invest KES 10,000 at a 10% annual return, you’ll earn KES 1,000 after the first year. Your total becomes KES 11,000. In year two, the 10% applies to KES 11,000, not just the original 10,000. You earn KES 1,100, and your balance grows to KES 12,100. In the third year, your interest is calculated on that new amount. And so it continues, compounding over time.
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This is why time is the most important ingredient in this equation. The longer your money stays invested, the more noticeable the growth becomes. Starting early doesn’t require a lot of money, just consistency. That consistency, paired with time, can produce powerful results.
Here’s a simple comparison.
If you start saving KES 5,000 a month at age 25, with an average return of 10% per year, you could end up with more than KES 38 million by the time you’re 60. If you wait until age 35 to begin, you’d need to save more than twice as much each month to achieve a similar outcome. That difference isn’t about effort. It’s about time.
But compound interest doesn’t always work in your favor. It also shows up in debt. For example, when you carry a credit card balance, the unpaid interest becomes part of the new amount you owe. You start paying interest on top of interest, and the debt grows faster than many people expect. This is how many get caught in a cycle that’s hard to break.
So learning about compound interest isn’t just about how to grow your money. It also teaches you how to avoid expensive borrowing. Whether you’re saving in a money market fund, repaying a loan, or deciding when to invest, understanding how compounding works helps you make more deliberate choices.
Start early. Stay consistent. Let your money work for as long as possible. Compound interest rewards patience, and in personal finance, that can be your greatest advantage.
