Rate Comparison Calculator
Compare two different interest rates, and explore the returns you could get over various time horizons. Our calculator also enables you to visualise the impact of different compounding periods and annual brokerage or custody fees.
How will you save?
Your Investment
Total savings
Duration
10 years
Interest rates are likely to change. For simplicity, this calculator assumes your chosen rates remain stable throughout the selected duration. We make no assessment on how likely you are to secure your chosen rate.
Strategy 1
Growth rate
Lightyear Savings (4.58%)
Rate type
APY
Annual fee
None
Strategy 2
Growth rate
Custom
Rate type
APY
Annual fee
None
4.58%
Strategy 1 APY
$2,209.83
Strategy 1 advantage after 10 years
3.0%
Strategy 2 APY
The journey ahead
Your projection
ChartTable
Strategy 1
Strategy 2
This calculation assumes that the rate of return remains constant. If your rate of return isn’t guaranteed, enter estimates to get a rough answer. Forecasts are not a reliable indicator of future performance.
Selecting the right savings or investment vehicle for your personal needs can help you reach your financial goals more quickly. There are plenty of options out there to help you grow your nest egg, but deciding which is best for you requires a good understanding of compound interest. Being able to accurately compare two interest rates over a given timescale is a great way to visualise the power of compound interest, and determine which investment strategy is best for you.
Let’s take a look at how to use our compound interest calculator to model your possible returns and help you plan to meet your financial goals.
How to use the compound interest comparison calculator
In the rate comparison calculator above, you can enter the balance of your current savings and compare two interest rates (with different compounding periods) alongside any associated fees, to see which could produce the optimal returns on your hard earned cash.
Here’s how to use the compound interest comparison calculator:
- Select your currency from the dropdown (£, $, €)
- Enter the amount you want to deposit (i.e. how much you’ve already saved)
- Use the slider to set the timescale you want to model
- Enter the details for Strategy 1 - either select a preset rate, or enter a custom interest rate (i.e. the rate offered by your savings account, or the rate at which you anticipate your investments to grow)
- Select a rate type (APR or APY). Selecting APR will also prompt you to enter the compounding frequency (i.e. how often your gains are reinvested into the balance, so they themselves can start to earn interest)
- Optionally, enter any annual fee charged by your bank or broker (sometimes called a custody fee, this is charged as a percentage of your total holdings)
- Add the same information for Strategy 2 - the interest rate you want to compare against
You’ll be shown the projected growth in your savings using both interest rates, as a chart and as a table. Above the chart you’ll see the annual percentage yield (APY) once compounding is taken into account, and the final difference between the two balances at the end of the period.
Bear in mind, for the sake of simplicity the interest rates used in our compound interest calculator remain the same throughout your selected time period. In real world scenarios, rates can change - moving down as well as up. This calculator is for information only, and should not be taken as investment advice.
Worked example: Compare two savings scenarios
How much of a difference can a small percentage change make over time?
Let’s compare the Lightyear Savings rate at the time of writing - which is 3.72% APY - against a model bank savings account which pays 1.5%. We’ll deposit €10,000 and leave it there for 10 years. Here’s what happens:
- In Lightyear Savings, with 3.66% interest (APR) compounded monthly, your APY is 3.72%, your balance after 10 years is €14,411.52
- The same deposit in a 1.5% account, also compounded monthly and also with no annual fees is €11,617.25
This is only an illustrative example, and it doesn’t take into account the likely changes in interest rates you’d see over a 10 year period. But it does demonstrate how much better off you could be simply by hunting down a better rate. In this case, you could be better off by over €2,700 just by making a smart decision with where you deposit your funds.
Compound interest - what is it and why does it matter?
In very simple terms, compound interest is interest on interest.
Interest is expressed as a percentage, paid based on the balance of the account in question. If you deposit €10,000 and earn 5.02% (APR) interest, which pays out at the end of the year, you’ll finish up with €10,502. In year 2, your interest is calculated based on a deposit of €10,502 - which means you’ll earn a higher amount of interest. This process continues, producing exponential growth.
An even better outcome is if your interest compounds monthly, instead of yearly. In this case, your €10,000 will become €10,513.71 in a year, as the monthly calculations run on a higher and higher deposit value every time. Sure, it’s only a €11 difference in year 1, but with higher rates of return or longer durations, the effect can become very pronounced.
Compound interest is a powerful tool which can help your money earn higher returns, simply by leaving it for longer. Our compound interest calculator is the perfect way to illustrate the potential outcomes of different interest values on your savings, so you can decide which savings account or investment vehicle is best for your long term financial goals.
What’s the difference between APR and AER/APY?
When you’re looking into different ways to save, you may come across interest expressed both as APR and AER (or APY).
Annual Percentage Rate - APR - is the amount you’ll earn in savings interest in a year. This typically includes fees, but doesn’t factor in any compounding effect if you were to leave your money for more than that single year.
Annual Percentage Yield - APY - on the other hand, includes a compounding effect. This is also sometimes called the Annual Equivalent Rate, or AER.
If you’re saving over a number of years, compounding can make a huge difference to the end amount in your account. For that reason, comparing accounts based on their AER/APY can be a smart move as you’ll be able to get a feel for the returns you can expect given the account’s compounding frequency.
How fees impact the compound interest calculator
In the example above, we've assumed that interest compounds monthly and that there are no fees to pay. Unfortunately that isn’t always the case.
If you’re paying fees, this will also eat away at the amount that’s in your savings account. Fees may include an annual brokerage fee payable on investments - usually a percentage charge deducted from your holdings, plus trading fees, or commissions, if you buy or sell your assets.
Another common fee is related to foreign exchange. While diversifying your assets and either saving or investing in foreign currencies as well as EUR is a common strategy to build a stable and varied portfolio, currency conversion can incur costs.
FX fees - often a percentage of the exchange amount - can be high and tricky to spot. Read your account terms and conditions carefully, or pick a provider like Lightyear which offers low cost currency exchange and pays interest on foreign currency balances. Lightyear customers can earn interest on GBP, EUR and USD, and benefit from currency conversion which costs just 0.35% over the live interbank exchange rate.
Wrapping up
If you’re saving to meet your future financial goals, compound interest is your friend. Making small changes to your strategy now can bring big returns in future, as the compounding effect goes to work on your savings. Use our compound interest calculator to view the potential long term effects of different interest rates, and to pick the right option for your own unique needs.
Disclaimer
This article is written for educational purposes only and should in no way be taken as investment advice. When investing, your capital is at risk. Seek guidance if necessary.