2 Places Canadians Can Earn Compound Interest

The life companies that we use are very good at paying dividends. In fact, the oldest life company in Canada has been paying dividends since 1848 without fail. That's all the way through the world wars, that's through multiple financial downturns in the market. You name it, they kept on paying dividends. And every other life company that I use has never failed to pay a dividend after they started.

Hi. Today I'm going to speak about two places that you can earn the compound effect on your money. It's been stated that Albert Einstein made the following statement, and I quote, compound interest is the eighth wonder of the world. Those that understand it earn it and those that don't pay it. I've also read that that's not exactly what he said. It was more like compound is the eighth wonder of the world. Well, I know the compounding effect that if you can get that related to your money, that will greatly improve your financial well being. Hi, my name is Dan Allen and I'm with Ascendant Financial.

Let's just first start with understanding what compound interest is. So what is the definition of compound interest? It's simply where you take the interest earned and you add it to the principal sum of either the loan or the deposit that you have. So it's interest on interest. Now, as per that statement and just the quote that Albert Einstein was given credit for, you should quickly understand that it's your best advantage to avoid having a loan or compound interest will be a factor. But today we're not going to talk about loans. We're going to talk about how you can earn compounding. So we're going to first place we're going to look at is at a commercial bank. So you could go to a commercial bank and you could open an interest bearing account and it could be set up in a way that it's going to compound after a period of time. So we're going to use an example of where you put $1,000 into an account and after a year it will compound. So the interest rate that we're going to use is 10%. And the reason why I chose that and none other is simple math. Now you really can't get a 10% interest rate now on an interest bearing account at your bank, but we're going to use it just like I said, because of how easy it is to calculate. So after the first year that that counts in place, you would have earned $100 in interest based on that 10% amount. So that $100 gets added to the original principal. So for the second year you now have $1,100 that's earning interest at 10%. So at the end of the second year it would be an additional $110 that you earn. So now you have $1,210 earning interest for the third year. And that's how compounding works. And you can see how over time that just gets greater and greater. The other thing I want you to understand about compounding and compound interest is that if you take and withdraw the interest at some point, let's just say based on that example, after the first year you left it in. After the second year you had $210 of interest and you took it out. Well, you effectively have crippled that compounding effect. So the next year you'd be back to 10% on 1000. And it not only impacts the next year, it impacts the year after and the year after. So I just wanted to you to understand how important it is not to interrupt that compounding effect if at all possible. That is one place that you could earn the compounding effect as it relates to your money. So that's the first example I wanted to give you. The second one is related to a very specifically designed dividend paying whole life insurance policy. I'm a life insurance broker, so I use these products all the time. But I'm going to try to explain how you could structure one in a way that you would have the compounding effect helping your money grow in value all the time. And the thing that some people may know is that when you get a contract with a life company and it talks about a dividend paying whole life insurance contract, it will have an error clause that says dividends are not guaranteed. And that is true. Every whole life insurance policy that's dividend paying will have that in there. Dividends are not guaranteed. Now part that I want you to understand is that the life companies that we use are very good at paying dividends. In fact, the oldest life company in Canada has been paying dividends since 1848 without fail. That's all the way through the world wars, that's through multiple financial downturns in the market. You name it, they kept on playing dividends. And every other life company that I use has never failed to pay a dividend after they started. So that gives you a high confidence feel that you're going to get a dividend. It's not guaranteed. But for this example I'm going to use that because of the history. So as a dividend that's paid after you pay your premium at the start of the year, you get a dividend at the end of the year. And that dividend, when this policy is structured in a way to allow it to compound, will buy paid up additional death benefit. So just so you understand that it's paid up additional death benefit so you don't have to pay for that death benefit again. And what it does is it gets added to original amount of death benefit on that policy. So that is what happens with that structure. Now the next year again, you pay your premium, you get through to the end of the year, the dividend is calculated and paid not only on the original amount of death benefit, but also on the incremental amount of death benefit that you got from your first year dividend. And that happens year after year. And it just starts to compound the death benefit. And as that death benefit goes up, the dividend is paid on a bigger and bigger amount of death benefit. Now you might ask, well, how does that really help me, Dan? Well, here's how. Those contracts are all written in a way that states that the cash value has to equal the death benefit by age 100. And if you think about what's happening here, we're always, every year we're adding to the death benefit. So what does that force the life company to do? It forces the life company to accelerate the growth of your cash value all the time. Now I know enough about these policies to know that the cash value has to go up every day because of that clause. It's in that contract. And if we keep on pushing up the death benefit, that's going to be accelerated more and more. And in fact, as these things get mature, meaning they have more years that they're in place, that acceleration just gets greater and greater and the compounding effect is just huge and it can really support your financial well being. So again, there's a lot of living benefits when it comes to dividend paying whole life insurance. And one of the reasons that we use this as a platform for the process that we teach, which is called becoming your own banker, is because of how that compounding effect works within that product. So that's just a really short discussion about two places that you can earn the compounding effect that will support you in your financial well being. So the first one was you could do it through an interest bearing account at a bank. And the second one that you can enjoy is through a properly structured dividend paying whole life insurance policy that's set up to help with the compounding effect. Now what I'm going to encourage you to do is just learn more about how dividend pay and whole life insurance can help you. And through this process that we teach, and I'm just going to encourage you to take in more of our videos, you can enjoy the compounding effect as it relates to your money. And the only thing that you're going to be required to do is to pay the premiums. And once you understand, just like Albert Einstein spoke about compound interest, those who understand it earn it. I'm going to tell you that people who understand becoming your own banker process will be the ones that take this on and enjoy the benefits of the compounding effect.