Interest rate

With investing, unlike cash savings, there’s no set interest rate that you will get for saving your cash. Instead, your money can typically grow in value over time (with ups and downs along the way), which is often represented as a percentage similar to an interest rate.

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For instance, let’s say you invested £1,000, and 12 months later the value is now £1,100. It has grown by 10%. That’s really good.

The next year, it might grow by another 10% giving you a balance of £1,210. However, the next year it might reduce by 2%, giving you a current balance of £1,185.80.

Over the 3 years you’ve been investing, your initial £1,000 investment has grown to £1,185.80, an increase of £185.80, which is 18.58%, and is great overall. That’s an average increase of 5.83% per year (technically that’s called a compounded annual growth rate).

This is how investing works, there’s no set return (money made), and the return often varies each year. There’s no guarantee it will increase each year, but after you’ve been investing for a while, you can look at your historical increase or decrease to determine an average.

And when investing sensibly (for example with experts), the average can be a fairly significant increase over many years. Although again, there’s no guarantees. This is why investing is very popular, and typically seen as the best way to grow your money over time (that’s why almost all pensions are actually invested).

Historically speaking, investing sensibly has seen much better returns over time than saving cash for a set interest rate*.

If you were looking to make some projections for investing, you could use an estimate (not a guarantee) for a low return as 2% per year, a medium return as 5% and a high return as 8% (on average per year over many years of investing sensibly).

As a reminder, when investing, your money is at risk, meaning your money can go up and down in value, so you could get back less.

*Based on data such as the Barclays Equity Gilt Study.

**Based on FCA guideline numbers for investment illustrations.