1. What is the Interest Calculation?

This calculator compares monthly interest for credit card debt versus savings account returns in the UK. It helps visualize the cost of carrying credit card debt versus potential savings growth.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( P \) — Principal balance in GBP
• \( R \) — Monthly interest rate (APR/12 for credit cards or annual rate/12 for savings)
• \( I \) — Monthly interest in GBP

Explanation: The calculation shows how much interest you would pay on credit card debt versus earn from savings with the same principal amount.

3. Importance of Interest Calculation

Details: Understanding these calculations helps make informed financial decisions about debt repayment versus savings strategies.

4. Using the Calculator

Tips: Enter your current credit card balance, the card's APR, and a typical savings account rate. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why compare credit card and savings interest?
A: It highlights the opportunity cost of carrying credit card debt instead of paying it down to save on interest.

Q2: Are savings rates typically lower than credit card APRs?
A: Yes, savings rates are usually much lower, making credit card debt particularly expensive in comparison.

Q3: Does this account for compound interest?
A: This shows simple monthly interest. Actual credit cards compound daily, making the effective cost higher.

Q4: What's a typical UK credit card APR?
A: As of 2023, typical APRs range from 19% to 30% for most UK credit cards.

Q5: How can I use this for financial planning?
A: Compare the interest costs to see how much you could save by paying down debt versus keeping money in savings.