Compound interest and the Rule of 72: why starting early beats starting big

Compound interest means your money earns returns, and then those returns earn returns too. It starts slow and then speeds up, like a snowball rolling downhill. It's the main reason people who start saving early end up with far more than people who save bigger amounts later.

Simple vs compound

With simple interest, you only earn on what you put in. ₱10,000 at 6% simple interest earns ₱600 every year, forever. With compound interest, year two earns 6% on ₱10,600, year three on ₱11,236, and so on. After 10 years that ₱10,000 grows to about ₱17,900 compounded, versus ₱16,000 with simple interest. After 30 years the gap is huge: about ₱57,400 versus ₱28,000.

Time matters more than amount

Saving ₱1,000 a month at 6% a year grows to about ₱164,000 after 10 years. Keep going for 20 years and it becomes about ₱462,000, even though you only put in ₱240,000. The second ten years add far more than the first, because the pile is already working for you.

That's why a 22-year-old saving ₱1,000 a month can end up with more than a 35-year-old saving ₱2,000 a month by retirement. You can't buy back time, so the best moment to start is now, even with a small amount.

The Rule of 72

Divide 72 by the yearly return to estimate how many years it takes money to double. At 6%, about 12 years. At 9%, about 8 years. At 3%, about 24 years. It works in your head, no calculator needed, and it's accurate enough for everyday decisions.

• Savings account at 1%: about 72 years to double.
• Digital bank or time deposit at 4%: about 18 years.
• MP2 at around 7% (not guaranteed): about 10 years.
• Credit card debt at 36% a year: your balance doubles in about 2 years if you don't pay it.

The Rule of 72 works against you too. Debt compounds just like savings do, which is why paying off high-interest debt is the first 'investment' to make.

Inflation: the silent thief

Inflation is how fast prices rise. The BSP targets inflation of 2% to 4% a year. At 4% inflation, prices double in about 18 years (72 ÷ 4), so ₱100 today buys only about ₱50 worth of goods in 18 years. Money that earns less than inflation is slowly losing value, even if the peso amount grows.

This is why keeping all your savings in cash or a low-interest account isn't truly 'safe' in the long run. Short-term money (emergency fund, next year's tuition) should stay safe and reachable. Long-term money (retirement, a goal 10+ years away) needs to grow faster than inflation.

Remember this

Start early, stay consistent, and let time do the heavy lifting. Divide 72 by the rate to see how fast money (or debt) doubles.

Do this today

Use the Rule of 72 on your savings account's interest rate. How many years to double? Then do it for your credit card.