The snowball effect is sometimes called interest on interest. It's actually quite simple: you earn returns on your original savings or investments, as well as on the returns that come from it. And this every year. This has the effect that your capital will grow harder and harder.
To explain it with a snowball: It starts small, but in its path it takes a little extra snow with it all the time, making it not only bigger, but also increasing it’s speed. So it gets bigger and bigger, faster and faster. A small snowball thus turns into a serious avalanche.
"}},{"componentType":"sectionTitle","title":"How do you get even more out of the snowball effect?"},{"componentType":"productFeatures","image":{"transformBaseUrl":"https://assets.ing.com/transform/91e01b21-cce7-424c-b6bb-9b964e3c2142/plantinggrowmoneynopadding","type":"image","width":1214,"original":"https://assets.ing.com/m/4eab2ca0b2a03489/original/plantinggrowmoneynopadding.svg","extension":"svg"},"highlighted":false,"items":[{"body":"Interest on interest applies to both savings and investments. But the higher the efficiency, the greater the effect on your final power. And the potential return from investing is simply greater than if you save.","title":"Go for investing"},{"body":"A long term reinforces the snowball effect. So start early for optimal effect.","title":"Start early"},{"body":"The more you save or invest, the greater the effect. On top of your initial capital, for example, you can also invest periodically to increase your final capital. Discover the benefits of periodic investing here.","textLink":{"url":"/en/individuals/investing/periodic-investing","text":"Periodic investing"},"title":"Increase your deposit"}]},{"componentType":"sectionTitle","title":"An example"},{"componentType":"paragraph","richBody":{"value":"Suppose you invest 30,000 euros in a well-diversified fund* with a balanced distribution between stocks and bonds and achieve an annual return of 5%**. After 1 year, you then have 31,500 euros in your portfolio: the original 30,000 euros + 1,500 euros of interest.
What makes interest on interest interesting is that your returns begin to accumulate over the years. Because in the second year you don't receive 1,500 euros of interest again ... No, you earn 5% interest on the 31,500 euros in your portfolio, or 1,575 euros of interest.
Thus, your capital grows each year and thus you receive interest on an ever-increasing capital. After 10 years, your capital has already grown to 48,867 euros. As mentioned, the effect is enhanced by a long term. After 20 years, your capital in this example would be a whopping 79,599 euros. More than double your original deposit!
In the table below, we show similar examples, but with lower interest rates. So you can see that the greater the return, the greater the snowball effect.
"},"alignedImage":{"position":"bottom","transformBaseUrl":"https://assets.ing.com/transform/e6800716-43d7-43f2-9a03-cc87640de3c1/ENG_Snowball-effect-table","original":"https://assets.ing.com/m/6caf92f17241bcd0/original/ENG_Snowball-effect-table.png","extension":"png"}},{"componentType":"sectionTitle","title":"Curious about what it can do for you?"},{"componentType":"paragraph","richBody":{"value":"Of course, you don't have to invest 30,000 euros to benefit from the snowball effect. Investing more, investing less: anything goes! Want to know how much the amount you want to invest could be worth in the future? Then simulate the expected result now through our investment simulator.
"}}]},"legalZone":{"flexComponents":[{"componentType":"paragraph","richBody":{"value":"*By "fund" we mean "collective investment undertaking" (= UCI). UCI is a general name for institutions that raise financial resources from the public and manage a portfolio of financial instruments. Thus, the term "fund" refers to both investment companies (beveks or sicavs) and mutual funds, and their sub-funds.
** The estimated 5% return is not guaranteed and is based solely on a positive market. This example is purely indicative. This is not a reliable indicator of future results. Fees and taxes are not included.
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