Question

In your opinion, why is it still important to save and how might the theory of compound interest rates help to explain why even saving a little (at low interest rates) can impact when your retirement funds.

Answer 1

It is always important to save because if the money is not saved and invested properly it will not be able to reap optimum Returns and may end up lying idle. The theory of compound interest rates implies that interest can be earned even on on the interest accumulated and not just on the principal invested initially. Savings are important specially in case of retirement planning because the amount saved is required after retirement when there is no other source of income. If the investment is made in the correct manner even a small amount of investment can turn into huge savings because the interest is compounded at regular intervals. While selecting the correct fund the effective rate should be taken into account rather than the nominal rate to ensure maximum Returns.