The Power Of Compound Interest

in LeoFinance3 months ago

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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!

I joined HIVE and first heard the phrase "and it compounds over time" and was like, "hmm, that sounds cool" and gave me another reason to power up 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!


I'm not a financial advisor and this isn't financial advice. Always seek professional advice if you're unsure on how to spend your money

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me too I had the hobby of saving money since childhood but like most people store them in the bank but after knowing of crypto I invest my saving in the hive or other cryptos I like it because of interest or profit I make for my investment

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It's really eye opening, the possibilities that crypto have given us all - some say it's risky but if you can live with that, then I have a feeling you'll do really well over the long term! Great to hear you're putting your money/crypto to work :)

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yeah that the harders part of living with it but it's thrilling to live with risk but if you learn and make the right choice it will work out

Couldn't have said it better! Well said mate!

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thanks mate!

Great post. I just started moving some funds to Celsius, but I have yet to pick up any CEL tokens. Seems like I should.

Thanks mate! Yeah I'm going to have to pick up some more myself. Once you start putting crypto in there, if you want to make the most of the interest rates, you need to have more CEL! Celsius also buy back a lot of tokens each month which slowly reduces the supply over time. Not sure of the exact figures but you need to have about 30% of your portfolio in CEL if you wanted to get the higher interest rates

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Interesting, the bulk of my cryptofolio is staking coins and interest bearing ones like DAI. Have to check this out.

Yeah man, definitely give the calculators a go and see how the viewpoint looks in 20 years time if all the variables stay the same. It's pretty cool to just play around with the calculators and see what's possible! Happy compounding :D

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Now apply that to some DeFi projects and Crypto skyrocketing lol

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Haha, yeah the sky really is the limit when you combine all these different yield products together!

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This is the way I will go for my kids, hopefully I have them, teach them the ways of compounding interests early

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Financial education is something that isn't taught in schools so if you can pass knowledge on to your kids, they'll be eternally grateful and will have a great head start in their adult life!

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I think the only thing better would be to have several of those dripping variable rates to make your calculations more painful but also make that balance a little tastier after 20 years!

Why didn’t I start saving at 16 I’d be bawling by now

Lol, I'll take a little bit of calculation pain for tastier 20 year gains!

Lol, ditto! Hopefully this will all pay off by the time we're 50 though...

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I’ll need a few more airdrops and hopefully I can bring it down to 45, I am so torn like enjoy my 30s and have to work till 60 or save and hopefully be alive and enjoy my 50- rest of my life

I know that one but hopefully it's possible to have your cake and eat it if you can take loans out on your crypto like you mentioned in your post to enjoy some travelling time and making it sustainable... I'm a few years away from that at the moment though!

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Just jumped into Nexo this past weekend...I know, I know...Late to the party.

And so far, I'm falling in love with these type of new 'banks'....Celsius is on my radar for sure :)

Thanks for doing this...Shows the power of compounding for sure!

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Ah Nexo, yes, another one I've heard of but not got involved with. We're seeing a boom of various crypto/financial products now and it is really paving the way for the future. I love it haha!

There are plenty to choose from but if you're going to register for Celsius then feel free to use my referral in the post for some extra BTC!

No worries man, sharing my knowledge and hope whoever reads gets something out of it too! Thanks for checking it out!

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Signed up last night, you should have a new referral.

Thanks a lot man! I think it triggers once you deposit your $200+ crypto in your first transaction and then releases after 30 days for both of us. Happy days!

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Yup, waiting for these stupid gas fees to lower and then i'll bring some over lol

Hahaha, they really are stupid gas fees aren't they!

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Insanity.

The worst user experience in all of crypto lol

Hahaha! Too right!

Oh mate, forgot to ask if you and the CTP legends managed to get some names together for the unofficial CTP ranks based on staked CTP (think we need 6 or 7)? 😃

The power of compounding interests is amazing. I've started using Celsius last year, do want to increase my CEL stake to have even more advantages. When they make it possible to swap coins in app, supposedly from March onwards, it's going to be even better to use. Thank you for those numbers, never bothered to do the math, but it's impressive!

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Nice one man! Yeah it's a clever way to increase the demand for CEL as the more crypto you put in to earn, the more CEL you need to make the most of the interest rates! Swapping coins in the app is going to be huge too, looking forward to that! No worries for the numbers, it's good to see how it will all work out over time!

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