What this website is for

This website is intended to help you model the short to medium term impact of different financial choices on your overall wealth. Often its easy to imagine the near term impact of how a higher (or lower) salary might make you richer (or poorer) month to month, it's generally much harder to imagine the impact of this on your wealth if you compound savings over time.

How the model works

The model takes incremental savings and allocates them to the highest return accounts that you have said you have. For example, let's imagine you have three accounts: (1) a current account returning 1% interest, (2) an investment account you expect to return 8%, and (3) a credit card with 18% interest. In this case if you were saving £100 a month it would allocate those savings to pay down the credit card debt as this would represent the highest marginal return. Similarly if you were overspending by £100 it would take that £100 from your current account as this is the cheapest source of funding.

Note at the moment the model only allocates marginal savings, it doesn't reallocate balances between accounts. For example, if you have £1000 in a current account earning 1% interest and a credit card with a balance of £500 charging you 18% interest you would be better off moving the £500 in your current account to pay off your credit card. However, the model only allocates incremental savings it doesn't reallocate between the accounts that you have inputted. We did this to keep the model simple, note you can always play around with the balances in different accounts when you're setting up the model and see how it changes the outcome.

Assumptions and methodology

Methodology:

• The model only allocates incremental savings or overspend. It allocates savings to highest interest rate/return accounts and allocates overspend to the lowest interest rate/return accounts. It factors in limits on contributions to accounts (for example any annual ISA limits) as well as any limits on borrowing (for example Credit Card limits).
• It models all accounts on a monthly basis and then aggregates up the totals into annual sums.

Links to applicable tax rates

• Income tax rates: Here. Note all tax rates are those applicable in England, Wales and Northern Ireland. We have not yet incorporated Scottish tax rates but hope to in the future.
• Student loan payments and interest rates: Here.
• Tax rates on savings interest: Here.
• Tax rates on capital gains: Here.
• Note when calculating capital gain tax liabilities when there are two salaries the model will assign the tax liability to the person for whom it would generate the smaller bill.

Assumptions:

• Pension contributions: We assume personal pension contributions are only made on qualifying earnings.
• Cost inflation: 3% per year for general costs.
• Change in interest rates: With the exception of credit cards increase by 0.5% after one year and 1% after this.
• Credit cards: Interest rates default to 20% outside of the offer period. Interest on unarranged overdrafts are assumed to be 25%.
• Mortgages: We assume interest is calculated on a monthly basis and the interest rate given is an APR equivalent.
• Investments: We assume capital gains tax, if the account is not an ISA, is only paid on any withdrawals or any part of the portfolio that is churned.
• Macro: Current RPI is 2.6%.