Why 1% makes a huge difference: taking a look at savings and debts

Article originally from Sorted.org.nz

You might not think that 1% matters. Imagine going to your local department store and they have a “1% off EVERYTHING SALE!!!” – yeah, big woop, I hear you say. But if you’re a numbers person, or even a person that’s ever worked in finance before, then you would know that “just” 1 percent can actually make a big difference.

Want to see how one percent can make a big difference in action? Then you’ll want to see what a difference it can make to both your savings, especially for retirement, as well as for your debt repayments.

Let’s check out how 1% can make a difference with a KiwiSaver account

At the moment, KiwiSaver accounts are generating approximately 2.9% in returns. Using Sorted’s KiwiSaver calculator, we can work out our projected superannuation savings from here. So, let’s say that we’re 25, and we’re just starting off in our careers, with a healthy salary of $45,000. If we have our 3% KiwiSaver contributions, then by the time we want to retire, aged 65, then we will have amassed a projected $166.878.

If we’re going to live until 87, then this is $185 per week, not including our NZ Super from the government, currently sitting at $390 per week for singles. With contributions to KiwiSaver of just 1% more over this time, the figure would jump to $192,996 – an extra $26,118.

And how much impact does an extra 1% make on our debt repayments?

Let’s take the current mortgage rate and use another one of Sorted’s calculators for this one, shall we? The current floating rate for mortgages with ANZ is sitting at 5.79%. If our current loan amount is sitting at $50,000, we have projected another 15 years to pay it off, and we are making the minimum repayments each month ($416), then the total amount that we will end up paying over this period is $74,930.

But what if mortgage rates jumped up a percentage, to 6.79%? This means that we’d end up paying $79,842 all up – almost $5000 more than the original figure.

While it can seem that “just 1%” won’t make a difference, the fact of the matter is that with savings and loans, over extended periods of time, it really adds up. Think carefully about how much you can bump up your KiwiSaver contributions if you are still working, or see if you are able to switch over your loans to a lower rate. It might not seem like much now, but those dollars sure add up!