The six boxes
The calculator’s inputs sit under the heading “Your strategy”. The two deposit boxes must be filled in before it will calculate; the rest start with a value already set.
- Initial deposit
- The amount you start with. The calculator assumes it goes in today.
- Regular deposit
- The amount you add each period.
- Deposit frequency
- Annually, monthly, fortnightly, weekly or daily, starting at monthly. Choosing annually also sets compounding to annual and locks it there.
- Compound frequency
- How often interest is added: monthly or annually, which Moneysmart calls standard industry practice.
- Number of years
- From 1 to a maximum of 50, starting at 10.
- Annual interest rate
- Up to a maximum of 20%, starting at 5.00%. Beneath it the calculator shows an effective interest rate, which its help text describes as an annual rate taking into account compound interest and fees, also called an effective yield or annual percentage rate.
At the starting values the effective rate reads 5.12%. That is 5% a year added in twelve monthly slices of 5% ÷ 12, each earning on the ones before it: (1 + 0.05 ÷ 12) to the power of 12, less 1, is 5.116%, which rounds to 5.12%. (This guide’s arithmetic.)
What it gives back
The result is a chart by year and four lines: initial deposit, regular deposits (the total of them), total interest, and total savings. Below it, an “Alternative strategy” panel lets you change three things and see the two side by side: a delayed start in years, a different regular deposit, and a different compound frequency. Moneysmart says the calculator helps show the difference between saving now and saving later.
The assumptions built into it
Moneysmart publishes the calculator’s assumptions and disclaimers under the tool. Together they say:
- your starting deposit goes in today;
- each regular deposit lands at the close of the year, month, fortnight, week or day, to match the frequency you pick;
- interest is credited monthly or annually;
- the delayed-start comparison keeps the same deposit frequency;
- results are in future dollars, with no adjustment for inflation;
- results are estimates; the calculator cannot predict things like changing interest rates, and it is not meant to be your only source of information for a financial decision.
Two more things follow from the six boxes themselves. There is no box for fees or for tax, so the projection leaves both out. And the rate you enter is held steady for every year of the term.
That is why this sheet is the window of the house and not a wall. A projection is a view ahead from where you stand, drawn on today’s assumptions. The calculator page also suggests considering whether to get advice from a licensed financial adviser.
An illustration: the same deposits, three ways
This uses the calculator’s starting rate of 5% and starting term of 10 years, which are settings in a tool, not a rate any account pays. It puts in nothing at the start and $100 at the end of each month. The figures are this guide’s arithmetic, using the future-value formula in the calculator’s own page code, and rounded to the dollar.
| Setting | Deposits | Interest | Total |
|---|---|---|---|
| Compounded monthly | $12,000 | $3,528 | $15,528 |
| Compounded annually | $12,000 | $3,093 | $15,093 |
| Monthly, start delayed 2 years | $9,600 | $2,174 | $11,774 |
Read down the totals. Annual compounding ends $435 lower than monthly: in the calculator’s code, the deposits made during a compounding period are added at that period’s end, so with annual compounding a year’s twelve deposits arrive as one $1,200 at each year end, and interest is added once a year. (This guide’s reading of the page code and its arithmetic.)
The delayed start, measured over the same 10 years, ends $3,754 lower. Of that, $2,400 is the two years of deposits that were never made, and $1,354 is interest those deposits would have earned. (This guide’s arithmetic.) It is the same point Moneysmart makes about starting early: the longer money is saved, the more the balance can grow.
Moneysmart’s own worked examples, with the compound interest formula set out step by step, are on its compound interest page.
Projections inside advice
When a projection appears in personal advice, the Statement of Advice is where the reasoning sits. Moneysmart’s checklist says it should explain how the recommended strategy fits your goals, risk profile, time frame and financial situation, and the level of risk in the investment strategy. What else it must contain is on sheet 04, fees and statements of advice, and the line between general and personal advice is on sheet 02.