Albert Einstein is quoted as saying “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” He then went on to describe it as the “most powerful force in the universe”.
So what is compound interest and why is it so important?
At a basic level, interest is the reward you get from a bank for letting it use your money to lend to its customers. The real power of compound interest is the interest on the interest which, if you are a saver, is to your benefit and if you are a borrower is to your cost.
"The real power of compound interest is the interest on the interest which, if you are a saver, is to your benefit and if you are a borrower is to your cost."
I am a firm believer in saving from an early age. The discipline of saving for something rather than being able to get it straight away is a good life lesson. Child Trust Funds and Junior ISAs are a good reason to get children involved in saving. I wish I had learned about compound interest at school because it’s of fundamental importance in both saving and borrowing. Savings can start small, putting away money regularly each month. After a while your savings will build up into a lump sum which you can use for an important purchase you have been saving for, such as a deposit for a house, or simply to do something fun, like going on holiday.
In a similar way that bank and building society savings accounts attract interest, a with profit savings plan attracts regular bonuses, which accumulate with compound interest. And unlike most cash savings accounts, a with profit savings plan will usually attract a final bonus on top of regular bonuses, when it is surrendered or when a fixed term plan matures. You need to have been saving for at least three years for a final bonus to be paid.
"And unlike most cash savings accounts, a with profit savings plan will usually attract a final bonus on top of regular bonuses, when it is surrendered or when a fixed term plan matures."
Metfriendly offers a number of different with profits savings plans which are designed for saving for 5 years or longer. These include Individual Savings Accounts (ISAs) and Ten Year Savings Plans. Your premiums are invested in the Metfriendly With Profits fund which is invested in a diversified portfolio of assets to balance safety and returns on your money. It’s the returns on the with profit fund that pay your bonuses, with the final bonus topping up your return to reflect your share of the performance over the time your money has been invested. And because we manage your savings for you, there are no tricky investment decisions to make, like choosing funds or getting the timing right if you were to invest directly in the stock market.
"...because we manage your savings for you, there are no tricky investment decisions to make, like choosing funds or getting the timing right if you were to invest directly in the stock market."
The Monthly Savings ISA (and Junior ISA) are flexible stocks and shares ISAs. You can vary contributions, add a lump sum, stop or restart your monthly contributions at any time. The Metfriendly Escalator option helps you reach your savings goals more quickly by automatically increasing your monthly contributions each year, by a minimum of £10, until you tell us to stop. You are eligible for a final bonus after contributions have been invested for three full tax years. Contributions invested in the 2020/21 year have a 1.5% guaranteed annual bonus until 5th April 2021.
The Lifetime ISA is designed for 18-39 year olds to get on the housing ladder or to build a tax free lump sum payable at age 60. You can save up to £4,000 per tax year and the Government will add 25%, which is up to £1,000 p.a. It is also eligible for a final bonus after contributions have been invested for three full tax years. Contributions invested in the 2020/21 year have a 1.5% guaranteed annual bonus until 5th April 2021.
The Ten Year Savings Plan is a simple, long-term savings plan that you can’t dip in and out of. You can save from £25 to £300 per month and after 10 years, you can get the total value of your plan paid to you or leave it invested with Metfriendly to continue to grow. The ‘Rolling Plan’ option gives you a pay-out every year (after the first ten years).
Finally, remember that your savings are protected by the safety net of the Financial Services Compensation Scheme (FSCS). All Metfriendly policies are covered under the FSCS Insurance Scheme. This means that there is no upper limit on the amount protected, unlike the FSCS Deposit and Investment schemes which are limited to £85,000 per person per company.
If you would like to talk to us about our savings plans, call us on 01689 891454 or request a call back. You can also book a one-to-one meeting to discuss your financial options.
