A simple example
With A$1,000 earning an illustrative 5% a year, compounded annually, the first year adds A$50. The second adds A$52.50, giving A$1,102.50. This assumes an unchanged rate, no deposits, withdrawals, fees or tax.
What to keep in your records
Keep the starting balance, interest rate, compounding frequency and statement date together. Label projections separately from actual balances so a forecast does not become a recorded asset value.
A common mix-up
A projected return is not a promise. Simple interest is calculated on the original amount, while compounding also takes previously added interest into account. Read ASIC Moneysmart’s explanation.
