How compound interest works
With a savings plan, you pay in a fixed amount regularly. If your money earns interest or other gains and these stay invested, they grow along with it the following year. This is called compound interest – and the longer you save, the stronger its effect.
That is why the calculator shows three numbers: what comes out at the end, what you paid in yourself and which part comes from the assumed interest.
Example: €200 a month over 20 years
If you save €200 a month for 20 years, you pay in €48,000. At 0%, it stays at €48,000.
If you assume 3% a year, the calculation comes to around €65,371. At 5%, it would be around €81,161. The calculation uses monthly interest and an effective annual rate. The difference comes from the assumption alone – which is why it helps to try several values.
The numbers are a worked example. They say nothing about how a particular investment will actually perform.
What interest rate do I assume?
No calculator can tell you that. Savings accounts, bonds, funds and shares develop differently, and the past is no reliable guide to the future. Securities can also lose value.
One good way is to compare three variants: cautious, middle and optimistic – and 0% as well. That way, you see how much your result depends on the assumption. Wealthbliss does not give investment advice and does not tell you where to save or invest.
What the calculator does not include
Costs: many savings plans have ongoing costs or fees per payment. They reduce the result.
Taxes: gains can be taxable. How much depends on your country and your situation.
Inflation: an amount in 20 years will probably buy less than it does today. If you work with an interest rate after inflation, the result becomes more cautious.
Fluctuations: many investments do not develop evenly. The calculator spreads the assumed interest evenly over the years – in reality, there are good and bad years, and the value can also fall for a while.
Linking a savings plan to a goal
A savings plan is easier to stick with when it has a goal: the deposit for a flat, the car in five years, the children’s education or life after work. Then you know what you are saving for and by when.
Try turning the calculation around: how much do you need, and by when? Try different savings amounts and terms in the calculator until the result fits your goal – with a cautious assumption.
If your income changes, you can adjust the amount. Many people raise it a little after a pay rise instead of spending the whole difference. And if money gets tight for a while, a smaller amount is better than an abandoned plan.
The most important number is your savings amount
You cannot decide the interest rate, but you can decide your savings amount. Choose it so that it still works in expensive months – otherwise the plan becomes a burden.
This is exactly where Wealthbliss helps: it shows you what is truly free after fixed costs, reserves and tax reserve, and what a higher or lower savings amount means for when you reach your goal.