Compound interest, the 8th wonder of the world, says Einstein

Compound interest has been around for centuries and has been considered to be the 8th wonder of the world by the likes of Albert Einstein. This concept is similar to investing early into an ISA, it can make a substantial difference to your investment pot, says Fidelity International.

Compound interest is, in essence, the concept of earning interest on your interest. So, each year an investor earns interest on both their original capital and the interest from the first year and so on. The massive difference in returns compared with taking out the interest is the miracle of compounding.

The key to compounding is investing as early as possible as the longer the benefit is in play the bigger it becomes. The benefits of saving early in life are greatly magnified by compounding.

Compounding can be used in terms of investing early within an ISA, for example, an over 50 ISA investor would be considerably better off investing at the beginning of December than they would be investing in April, even as little as six months can make a difference. Fidelity's analysis placed the full PEP or ISA allowance into the FTSE All Share index and FIF Special Situations Fund over a 15 year period.

Rob Fisher, Head of UK Personal Investments at Fidelity International, comments: "The proof is in the pudding. It is definitely worthwhile investing sooner rather than later and who am I to argue with Albert Einstein? We have already seen many investors utilising the extra £3,000 ISA allowance, with our October ISA sales up 47% on the same time last year.  The ISA is the most tax efficient way to save outside of a pension, and the increase in allowance is the biggest positive move the Government has made in over a decade towards saving, actually since they introduced the ISA.  It is not an opportunity to be missed and investors should start their returns compounding now."

ISA offer:

Fidelity is offering investors an extra incentive to review their portfolios sooner rather than later. From 6th October 2009 to 18th December 2009, investors who review their portfolios and, as a result, choose to transfer their existing ISA(s) into a Fidelity fund will receive up to £300 cash-back depending on how much they transfer (terms and conditions will apply). The minimum eligible investment to qualify for this offer is £5,000 which will generate cash back of £15. There will also be no initial charge payable for self-directed investors.

In addition, people choosing to make a new ISA investment into a Fidelity fund will save up to £350 on their £10,200 ISA contribution by investing online at no initial charge. They will also be eligible for the same cashback incentive, which could be as much as £30 on a £10,200 ISA investment.