Compound Interest

The compound interest calculator assumes monthly compounding at a fixed interest rate. It also assumes the additional deposits are a fixed amount deposited either monthly or annually.

Be conservative – remember, this should be the average return over the time period selected. If you select 20 years, there might be years where you generate a 15% return, but chances are you won’t average a return that high when you take into account slower or negative years.

If you’re invested in a high-growth portfolio, it might be ok to assume 7-8% returns, while a more conservative portfolio might assume 4-5%. It really depends on where you plan on parking your money. Try out the calculator with a few different returns to see how a 1 or 2% change could affect your final balance.

Have a play around with the calculator and you’ll see that it’s normally better to start with a bigger deposit than to have a small initial deposit and larger regular amounts. However, that’s because the calculator assumes a constant rate of return from day 1 – the bigger your balance on day 1, the more you’ll earn over time.

In reality, it all depends on timing. If you put in a big lump sum just as the market drops, you’ll probably wish you waited. But, if the market is going up, you might have been better off depositing it all at once. The best answer here is to do what you feel comfortable with. If you have $10,000 to invest, maybe you invest it in a lump sum or maybe you break it up into a few deposits over 6 months – it’s entirely up to you.