We're always told with investments, you can't beat the effect of compound interest. With compound interest you earn interest on your interest. The calculators you find online can all show the benefit of compound interest, but what they don't show, is just how much impact taxes can have on the end result. Even the government's ASIC Moneysmart site doesn't include the option to enter a tax rate.
The Compound Interest Calculator shows quite clearly the impact of taxes on your savings and depending in the interest rate, can make quite a significant difference to the end savings.
For example:
Initial amount: $10,000
Interest rate: 5%
Number of years: 10
End result: $16,470
Interest: $6,470
Now let's enter 32.5% and Medicare Levy of 2%.
End result: $13,904
Interest: $3,904
The impact on your savings due to taxes is very significant giving just 60% of the interest that could otherwise be made if the government didn't take taxes each year. If taxes were taken out at the end of the period, the interest earned would be $4,237, or about 8.5% more.
For those interested extend the time out to 30 years and you can really see the difference taxes make.
Generally compound interest calculators aren't particularly useful in the real world because they don't take into account the government needs to collect taxes. The Compound Interest Calculator provides a better estimate of the return on your investment that ends up in your pocket.
Kelvin Eldridge
www.CompoundInterestCalculator.com.au
Compound Interest Calculator
The Compound Interest Calculator shows quite clearly the impact of taxes on your savings and depending in the interest rate, can make quite a significant difference to the end savings.
For example:
Initial amount: $10,000
Interest rate: 5%
Number of years: 10
End result: $16,470
Interest: $6,470
Now let's enter 32.5% and Medicare Levy of 2%.
End result: $13,904
Interest: $3,904
The impact on your savings due to taxes is very significant giving just 60% of the interest that could otherwise be made if the government didn't take taxes each year. If taxes were taken out at the end of the period, the interest earned would be $4,237, or about 8.5% more.
For those interested extend the time out to 30 years and you can really see the difference taxes make.
Generally compound interest calculators aren't particularly useful in the real world because they don't take into account the government needs to collect taxes. The Compound Interest Calculator provides a better estimate of the return on your investment that ends up in your pocket.
Kelvin Eldridge
www.CompoundInterestCalculator.com.au
Compound Interest Calculator
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