Compound interest calculator UK edition

Our British Expat Money compound interest calculator lets you see how much money you’ll have in the future.

No matter whether you want a savings calculator for retirement or a more general calculator for savings goals nearer to today we’ve got you covered.

Simply enter a few basic numbers and you are good to go.

Here’s the calculator (& we’ve answered a few frequently asked questions below if you run into any issues):

FAQs

Feel free to skip to the question you want answering rather than go through them all.

How to guide?

Starting amount

This is the initial lump sum that you’ve already managed to save. Perhaps in your personal pension, savings or investment account.

Interest rate

This is the interest rate you expect to get. If you are using a savings account to grow your wealth it is simply the rate you are currently getting from the bank.

If you are investing you’ll have to take your best guess. We’ve talked about how you could do this below (See – What investment & savings calculator interest rate should I use?)

Number of years to invest or save

This is the number of years you’ll be saving or investing for. A common mistake a lot of people make is underestimating their time horizon and this makes a big difference to their numbers.

This is another one of those topics that deserves a little bit more depth. (See – What savings & investment calculator growth period should I use?)

Annual contributions

If you are investing a lump sum one time only you can ignore this. But if you would like to add money regularly you can enter it here.

Just to be clear, it is the amount you’ll be adding annually. If you intend to add money at more or less regular intervals just multiply or divide by the relevant amount.

For example, if you intend to add £100 per month, then simply multiply the number by 12 and enter that so here we would enter 1200.

If your contributions are likely to be less predictable, just make your best guess as to what the average will be each year.

Total from starting amount

This is how much your initial amount has grown into.

Total from contributions

This is how much your regular contributions have grown into.

Grand total

This is how much in total you should have in the end. It combines your contributions and starting amount.

What interest rate should I use?

The interest rate you use depends on what you are saving or investing.

If you are using a savings account you could just key in the rate you are getting from your bank. Certainly in the short term this is probably a good approach.

If you are investing in stocks (shares) or bonds you need to make your best guesstimate.

There are couple of recognised ways to do this. The first is to use history as a guide. Whilst there’s no guaranteed repeat, in the absence of anything better, assuming a repeat over the very long term is probably a sensible approach.

But there is a second approach that some people like. And that is to use predictions for the future.

Both of these are reasonable. We like the work of esteemed Professors Elroy Dimson, Paul Marsh and Mike Staunton, courtesy of Credit Suisse. They kind of combine both approaches. In other words, they use data and trends going back to 1900 to make predictions going forwards.

Over 100 years of stock market history

Based on this Credit Suisse data, the table below contains real and nominal returns for a selection of potential investments.

Real returns give you a better idea of what your spending power is going to be in the future, so we’d usually recommend going with those.

However, just know that you should have a lot more money than using real returns would have you believe. But at the same time this won’t go as far as it does today.

We’ve got stocks, bonds, cash and then a range of investment portfolios based on a mix between stocks and bonds. (You can read more about the mix between the two here).

The first number indicates the percentage in stocks and the second bonds. For example, 60/40 describes a mix of 60% stocks with 40% bonds.

How contributions calculated?

This calculated returns assumes contributions are made at the end of each year. If you contributed at the beginning of each year you would end up with slightly more, so this is a more conservative approach.

What growth period should I use?

Unless you are saving or investing for something concrete in the not too distant future, you will probably underestimate your time period for saving.

Lots of people think 10 years is a long time horizon, but in many cases that’s nowhere near long enough. Let me explain.

There are two things that people often get wrong.

• You save/invest into drawdown
• You should assume you will live to a ripe old age

If you intend to draw an income from your savings at some point, the number crunching behind the planning for how much you can withdraw usually assumes you are invested at least 50% in stocks (shares).

The impact of this is that your money is invested into drawdown not up to it. Here’s an example to explain what I mean. Say you are 40 and you plan to retire when you are 60. Your savings and investment time horizon isn’t 20 years, it’s 50 years.

You need your money to be invested throughout retirement to combat inflation and it’s hard to argue why you shouldn’t plan to live until you are at least 90.

Compound interest calculator – the bottom line

So there you have it. Our British Expat Money compound interest calculator lets you see how much money you’ll have in the future.

No matter whether you want a savings calculator for retirement or a more general calculator for savings goals nearer to today we’ve got you covered.

So I think now there’s only one thing left to say.

Good luck!