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Thursday 21 March, 2019

The magic of compound interest

The magic of compound interest

“NASFUND members should take advantage of the benefit of compound interest while contributing towards their retirement savings.” Chief finance officer, Rajeev Sharma said that, the benefit of compound interest can be seen when a member does not withdraw funds for the long term. Compound interest will further grow member balances, if members increase an additional amount from the normal mandated contributions of their member or employer contributions. In an example of a member who contributed for 30 years, the illustration table shows the benefit of increasing one’s contribution through voluntary contribution of K50 and K150, with an assumed average return of interest of 5% for the period of 30 years. A member who increases an additional contribution of K50 for the next 30 years will have a total additional balance of K40,866, out of which he / she would have contributed only K 18,000 and balance of K22,866 would come from interest. However, if the member increases an additional of K150 for the next 30 years, the member, will have\ K122, 579 as his/ her total balance. “This is the magic of compound interest”, he said. “This will happen if members do not touch their funds while still contributing and their savings will grow through interest that is being credited by the FUND annually”. NASFUND has paid K1.4 billion as crediting amount to it’s members in the last six years.

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