When it comes to the world of retirement accounts, "exciting" isn't always the first word to come to mind.

But I would argue, there's something pretty exciting to the idea of setting aside money and letting it grow exponentially. That's right, by the power of compound interest, money you set aside today for retirement will equal more than the sum of what you contributed, sometimes much more than you ever expected.


"Compound Interest Street Sign On Wall Street" by investmentzen is licensed under CC BY 2.0 

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 The idea of compound interest is old as mathematics itself, and yet it still manages to surprise people. I like to tell people about a story I heard one time, about a penny that doubles every day for a month.

It goes something like this: if you start the month with one penny, and it doubles every day, how much would you have by the end of the month (let's say it was one of the 30 day months)?

Guess now, because you might enjoy how far off the mark you are later.

Now just to illustrate the difference between a lack of interest and interest, let's state the obvious by saying that if you simply saved one penny on the first day of the month in an account that bears no interest, you'll end the month with $0.01.


"Pile of Pennies 4" by cweyant is licensed under CC0 1.0 

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In the penny doubling experiment - where you put a penny into an account in which the sum doubles every day - you will have $5,368,709.12‬. That is to say, an account where you could make 100% interest on your penny daily, would make you worth over $5 million at the end of the month.

Don't believe it? Grab the calculator app in your smartphone and input the following:
0.01 * 2 then press the "=" button 30 times in a row to see the effects of doubling.

Of course, the idea of 100% interest daily on an account is not typical, and most savings accounts (high-yield savings accounts) hover around 2% APY maximum. There aren't many real-world opportunities to earn 100% interest per day, but I hope this simple experiment can inspire you as to the power of compounding interest.


The Nerdwallet Roth IRA Calculator


Having established that both 0% interest accounts are sub-optimal, and 100% daily interest accounts don't exist, is it possible to still hit a sweet spot where you can truly harness the power of compound interest over time in a noticeable way?

This is where a fun little tool comes in, which can help you visualize what compound interest can do for your retirement accounts. In my recent article on the savings tool Acorns, I showed you what would be possible with $20 a week contributions in 40 year's time. It's no surprise then that I enjoy a similar tool on Nerdwallet's IRA Calculator which shows me this result:

(In case I've lost you at some point: Roth IRA Definition)


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The above chart shows that at my current age of 31 and my current Roth IRA balance of approximately $14,000, I am on track for an IRA with a value of $861,000 by the time I hit the age of 67. All I have to do is keep saving $6,000 every year from here on out in the Roth IRA account of my choice. A note, this number will likely go up in the future as it is indexed for inflation.

But you get the idea.

Try playing with the Roth IRA Calculator and see what saving in a Roth IRA can do for you. In fact, if you're still lost as to the rules of the Roth IRA, check a few of the following resources below:


Write to me here about any questions you have about the process of starting a Roth IRA, any time. And don't forget to check out my review of Acorns, the auto-save tool which can let you auto-save into an Roth IRA as well.

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A Roth IRA is just one of the many types of retirement investing products out there, and I look forward to educating you not just on facts and definitions, but on the latest and greatest investing tools that are making it possible for you to make these investments yourself and secure complete financial wellness for your future.