Savings vs investing returns: why small differences matter

A few percent doesn’t sound like much — but over 20–30 years, it can change the outcome dramatically.

The compounding effect

Compounding multiplies differences over time. A 3% difference in annual return can create a much larger dollar difference after decades — especially when you contribute regularly.

A simple experiment

Pick an investment period (e.g. 20 years).
Use the same initial amount and monthly contribution.
Compare two rates (e.g. 4% savings vs 7% ETF).

What to watch

If the timeline is short, the difference may be modest.
If the timeline is long, the gap often grows quickly.
Volatility matters for investing (returns are not smooth).

FAQ

Does this mean I should avoid savings?

No. Savings is useful for emergencies and short-term goals. This is about long-term growth potential.

Are ETF returns stable?

No. Markets fluctuate. Use conservative assumptions and focus on ranges.

What if savings rates rise?

Great — then rerun the comparison. This tool is about testing scenarios.

Do fees matter?

Yes. Even small fees compound. Try lowering the ETF return assumption slightly to account for costs.

Where can I learn the maths?

See /how-compound-interest-works.html for the formula and explanation.

Savings vs investing returns: why small differences matter

The compounding effect

A simple experiment

What to watch

FAQ

Related links

Try another calculator