The savings calculator demonstrates how it is possible to accumulate significant wealth, even from relatively modest contributions by saving consistently over a number of years.
Save £200 a month for 40 years, with an interest rate of 10% a year and it is quite possible for you to become a millionaire!
Perhaps this tool would be more accurately described as a compound interest calculator, because these surprising returns are achieved through the wonderful power of compound interest.
Compound Interest
Although powerful, compound interest is a simple concept.
If a sum of money is repeatedly increased by a fixed percentage, its value becomes progressively larger over time.
By saving for the long-term, you not only earn interest on the money that you have directly contributed, you also earn interest on your previous interest.
Savings Plan
When developing your savings plan, it is important to consider that the final value of your savings is a product of the following factors:
The duration of your saving
Although it is never too late to start saving, the earlier that you start saving, the more time you allow for the magic of compound interest to take effect. The difference between the final sum after saving for 40 years compared to just five years less can be significant. Try entering different durations in to the calculator and see for yourself.
The rate of return
The rate of return that you are able to achieve can have a significant impact on the final value of your savings. Over the long-term, even a small difference in the rate of return can have a massive impact on your ultimate wealth. Again, try entering different values in to the calculator, it can be amazing the difference a couple of percentage points can make to the final sum.
The amount you contribute
Obviously it can make sense to save and invest as much as reasonably possible. How much you ultimately contribute is, however, a personal matter and it is often a case of striking a balance between enjoying yourself now and your future financial security.
