What savings grow to with compound interest and regular contributions.
Compound interest means the interest you earn is added to the balance and starts earning interest itself in the next period. That is why savings grow along a curve rather than a straight line. The formula is A = P × (1 + r/n)^(n×t), where r is the annual rate, n the number of compounding periods per year and t the number of years.
Every euro you put in starts earning from the day it arrives, so the earliest deposits work the longest. Two people who pay in the same total, one starting ten years earlier, end up in very different places. In this calculation time is a stronger variable than the rate.
No. The result is a nominal amount — how many euros will be in the account, not what they will buy. Inflation erodes that purchasing power, and capital income in Latvia is generally subject to personal income tax. For a more realistic picture, enter a rate that already has expected inflation subtracted from it.
The more often the better for the saver — monthly compounding beats annual at the same headline rate. The gap is smaller than people expect, though: at 5% a year the difference between annual and monthly compounding is roughly 0.1 percentage points a year. The term and the size of the deposits matter far more.