📈 Investment

A lump sum against a monthly plan

An investor with $50,000 compares a single deposit at 6% with $2,000 a month for 25 months, both earning 6% a year. The lump sum compounds from day one and finishes ahead, while the monthly plan spreads the entry price over two years. The gap is the price of waiting to invest.

Worked with: Investment Calculator, Compound Interest Calculator

Working out what a 60% return a year means

A $25,000 investment sold for $40,000 five years later is a 60% total return, which sounds large until it is annualised: the compound rate is 9.86% a year. Comparing a five-year total against a one-year figure without annualising it is the most common error in performance reporting.

Worked with: ROI Calculator, CAGR Calculator

A £5,000 card balance: the 2% minimum against a fixed £250

A household carries £5,000 on a credit card at 22.9% APR and pays the 2% minimum each month, which shrinks as the balance falls. They want to know what happens if they switch to a fixed £250 a month instead.

Inputs: Balance £5,000 at 22.9% APR. Path one: the 2% minimum with the card's £25 floor. Path two: £250 a month, fixed.

Result: The minimum path does not clear the balance inside the calculator's 1,200-month ceiling, and books £69,459.53 of interest by that point. At £250 a month the same balance clears in 26 months with £1,358.22 of interest, so £6,358.22 is paid in total.

What it means: The first £100 minimum pays £95.42 of interest and reduces the balance by £4.58, which is why the payment level decides the cost rather than the balance.

Worked with: Credit Card Calculator, Debt Payoff Calculator

Two £12,000 loans that differ only in the fee

A borrower is offered £12,000 over 36 months at 5.5% with a £250 arrangement fee, against a second lender quoting 5.9% with no fee. The headline rate points at the first offer.

Inputs: £12,000 over 36 months. Offer A: 5.5% plus a £250 fee. Offer B: 5.9%, no fee.

Result: Offer A has a monthly payment of £362.35, an APR of 6.92% and a total cost of credit of £1,294.63. Offer B has a payment of £364.52, an APR of 5.9% and a total cost of credit of £1,122.71.

What it means: Once the fee is priced in, the cheaper headline rate costs £171.92 more over the term, so the APR is the number that ranks the two offers correctly.

Worked with: APR Calculator, Loan Calculator

A three-year fund return against a savings account

£8,000 goes into a fund and is worth £11,600 three years later. The same £8,000 could have sat in a savings account paying 4.5% a year. The question is which return was better.

Inputs: Cost £8,000, value after three years £11,600, alternative rate 4.5% a year.

Result: The fund returned 45% in total, which is 13.19% a year once it is annualised. The savings account turns £8,000 into £9,129.33, a gain of £1,129.33, or 14.12% over the same three years.

What it means: A 45% gain over three years and a 14.12% gain over three years describe the same kind of arithmetic until both are expressed as an annual rate, which is the only form that compares.

Worked with: ROI Calculator, Compound Interest Calculator