Guide
What Interest Rate Should I Use?
Projections need an interest rate, but it’s only an assumption. A simple way is to use a low, base, and high scenario instead of one “perfect” number.
Published: March 12, 2025 · Updated: December 21, 2025 · By FinToolSuite Editorial
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Save a low, base, and high scenario to see a range of possible outcomes.
Open the calculatorQuick answer
Use a range (low/base/high) rather than one “perfect” rate. The right assumption depends on time horizon, risk, fees, and inflation. More on typical ranges: average return assumptions explained.
Disclaimer
Educational purposes only; not financial advice. Scenario rates are illustrative; real returns vary and investments can go down as well as up. Fees, taxes, inflation, and rules vary by provider and country.
Why use scenarios?
Rates change, and outcomes vary. Using multiple rates helps you see a range instead of anchoring to one outcome.
- Market/interest rate variability
- Inflation over time
- Fees and taxes
- How consistently you contribute
- Time horizon (short vs long)
A simple low / base / high framework
These are illustrative ranges, not recommendations:
| Scenario | Illustrative rate range |
|---|---|
| Low | ~2–3% |
| Base | ~4–6% |
| High | ~7–9% |
Use them as starting points for scenarios, not as expectations.
Worked example with three rates
Inputs: £5,000 starting, £100/month, 15 years.
| Scenario | Illustrative rate | Ending balance (approx.) |
|---|---|---|
| Low | 3% | ~£32,000 |
| Base | 5% | ~£36,000 |
| High | 8% | ~£43,000 |
These figures are for illustration only. Try these three scenarios in the calculator.
Try the scenarios in the calculatorInflation and “real” outcomes
A nominal rate doesn’t equal purchasing power. If prices rise, the “real” outcome can be lower. You can sanity-check by using a lower rate to approximate an after-inflation view. More on the idea: nominal vs real returns.
Common mistakes
- Using one high rate as if it were guaranteed.
- Ignoring fees and taxes that lower effective returns.
- Mixing APR and APY or not matching rate to compounding.
- Using the same rate for every time horizon.
FAQ
What interest rate should I use for a compound interest calculator?
Use a range (low/base/high) to see how sensitive your plan is to different outcomes.
Should I use APR or APY?
Use the nominal annual rate and match the compounding frequency. APY already includes compounding effects.
How do I pick a conservative rate?
Use a lower end of the range (e.g., 2–3%) as an illustrative scenario, not a guarantee.
Why do projections differ from real life?
Actual returns vary. Fees, taxes, inflation, and market swings change results versus simple projections.
Should I include inflation?
You can test an after-inflation view by using a lower rate. It’s still an estimate.
How do fees affect the rate?
Fees reduce the effective return. A small fee can lower the outcome over time.
Can the rate change over time?
Yes. Real-world rates move. Using multiple scenarios helps you see a range rather than one fixed path.
What’s a good way to compare two options?
Change one input at a time—such as rate or contributions—and compare low/base/high side by side.
Test low/base/high in the tool
Save three scenarios in the calculator to see how outcomes change.
Open the calculator