Interest on interest
Each month the balance earns one twelfth of the nominal annual rate, then your contribution is added. The next month’s interest is calculated on that larger balance. Contributions are assumed to arrive at month end.
Keep the rate definition consistent
This model uses a nominal annual rate divided by 12. An AER already includes compounding and is a different rate definition. Do not assume a variable savings or investment return will remain fixed.
What the projection excludes
The result is before tax, product charges and inflation. The purchasing power of the eventual balance can be lower than the number suggests. Use several rates and check the underlying product’s terms before making a decision.
Common questions
Is this an investment forecast?
No. It demonstrates fixed-rate arithmetic. Real investment returns vary and can be negative.
Sources & methodology
This page uses original budgeting guidance and transparent arithmetic. Example prices are chosen illustrations, not a survey of UK market prices. Replace them with written quotations.
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