Compound Interest Example
Compound Interest Saving Plan — Step-by-Step Example
Build a simple savings plan using compound interest principles.
Scenario
3-step savings plan: emergency fund → mid-term goal → long-term investing.
Inputs
Emergency Fund$10,000 in HYSA at 5%
Mid-term$300/month at 6%, 5 years
Long-term$500/month at 7%, 25 years
Results
Emergency fund (2yr growth)$11,049
Mid-term goal (5yr)$20,932
Long-term (25yr)$405,671
Explanation
A tiered plan: keep 3–6 months expenses in a HYSA, save separately for a 5-year goal, then invest long-term for retirement. Each tier uses the right rate for the right time horizon.
Key Takeaways
- Never invest emergency fund money — liquidity matters more than returns.
- Once mid-term goal is funded, redirect that $300/month to long-term investing.