"If I save ₩300,000 every month, how much will I have in 10 years?" As plain multiplication, the answer is easy: ₩300K × 120 months = ₩36M. But if that money also earns 5% a year while you save, you end up with about ₩46.6M. The extra ₩10M+ is what compound interest contributes — and the gap doesn't grow linearly with time. It snowballs.
Simple vs compound: does interest earn interest?
- Simple interest: only the principal earns interest. ₩10M at 5% simple grows by exactly ₩500K every year.
- Compound interest: interest is added to the balance, and the whole balance earns interest next period. Year one adds ₩500K; year two adds 5% of ₩10.5M, which is ₩525K.
Here's ₩10M left alone at 5% a year:
| Period | Simple | Compound | Gap |
|---|---|---|---|
| 10 years | ₩15.0M | ~₩16.3M | +₩1.3M |
| 20 years | ₩20.0M | ~₩26.5M | +₩6.5M |
| 30 years | ₩25.0M | ~₩43.2M | +₩18.2M |
For the first decade the difference looks unremarkable. By year 30, it's nearly twice the principal. The compound curve is flat early and steep late — which means the real fuel of compounding isn't the rate. It's time.
What monthly deposits look like
The same logic applies when you invest a fixed amount every month: the earlier deposits get more time to grow. At ₩300K per month, 5% a year compounded monthly:
| Period | Deposited | Balance | Growth |
|---|---|---|---|
| 10 years | ₩36M | ~₩46.6M | +~₩10.6M |
| 20 years | ₩72M | ~₩123.3M | +~₩51.3M |
| 30 years | ₩108M | ~₩249.7M | +~₩141.7M |
Look at the 30-year row: the growth exceeds the deposits. Your money has earned more than you put in — the point where "your money works for you" stops being a slogan and shows up in the math. Flip it around and the cost of starting late becomes visible too: 20 years vs 30 years is the same ₩300K a month, but less than half the final amount. In long-term saving, the most expensive thing is delay.
The Rule of 72: how long until money doubles
There's a quick mental shortcut for "how many years until my principal doubles":
72 ÷ annual return (%) ≈ years to double
- 3% a year → 72 ÷ 3 = ~24 years
- 5% a year → 72 ÷ 5 = ~14.4 years
- 7% a year → 72 ÷ 7 = ~10.3 years
It works in reverse, too: doubling within 10 years requires 72 ÷ 10 = about 7.2% a year. A handy sanity check for whether a goal fits inside a realistic return range.
Two things to include in any real calculation
- Tax: in Korea, interest income is withheld at 15.4%, so a nominal 5% deposit yields roughly 4.23% after tax. Use after-tax rates if you want the number you'll actually keep.
- Inflation: doubling your nominal balance means little if prices double too. For long horizons, run the numbers once more with the real return — your expected return minus expected inflation.
To try your own numbers — monthly amount, rate, horizon, lump-sum vs monthly deposits — plug them into the compound interest calculator and see the curves from the tables above drawn for your plan.
