With a savings account, your money grows over time based on how much you save each month, the interest rate on the account, and how long you save. This savings calculator is designed to illustrate how your savings will grow using compound interest, which is the most common type of interest for savings accounts. The interest in this calculator is compounded monthly.
Enter how much your initial deposit will be or how much you currently have in savings as the Starting Amount. Move the Monthly Savings slider to the amount you plan to contribute each month. Adjust the Interest Rate slider to the interest rate on your savings account. Finally, move the Years to Save slider to see how much you can save over time if you keep saving the same amount each month.
Starting Amount: This is the initial principal that you plan to deposit or that’s in your account now.
Monthly Savings: This slider represents the amount of money you intend to contribute every month.
Years to Save: This shows how many years your savings will be in the account.
Interest Rate: This is the compound interest rate (APY) of your savings account.
Interest rates vary greatly depending on the type of account, supply and demand, and what the Federal Reserve sets. For a typical savings account, you could expect anywhere from 0.01-0.08%. For a high yield savings account, on the other hand, it’s not uncommon to see interest rates of 0.2%-0.6%. A CD (certificate of deposit) can earn 0.07-1.2%, or even higher, depending on the length and financial institution.
Compound interest means that the money you earn in interest also earns interest, rather than just the principal. Basically, the amount of interest you earn will grow every time interest is added (or compounded) rather than staying the same. This makes it ideal for savings accounts. The formula for calculating compound interest is A = P (1 + r/n)^(nt). The variables for this formula are:
Some people save a set amount, such as $200. The Saving With a Purpose Coach can help you determine what you’ll need to save each month in order to reach your goals in your timeline. Others prefer to save a percentage of their monthly income. The 50/30/20 Rule can help in that respect. With this budgeting technique, you spend 50% of your income on needs, 30% and wants, and save the remaining 20%.
The simplest way to calculate interest is to use an online savings calculator like this one. But if you want to do the math yourself, you can plug your information into the compound interest formula of A = P (1 + r/n)^(nt).
An account at an insured financial institution is by far the best place to keep your savings. You may opt for a regular savings account, a CD, an IRA, or one of the many other savings vehicles available. What’s most important is that, due to insurance from the FDIC, your money will be safe as it grows. To learn more about these institutions, read this article.
A high yield savings account or CD will likely earn you the highest interest rate. Be aware, though, that money in a CD cannot be withdrawn until it matures without facing penalties and fees.
The interest you’ll earn on $1,000 depends on the interest rate of the account and how long you store it there. The longer it’s saved and the higher the interest rate, the more you’ll earn. For example, if you kept $1,000 in an account for 5 years with a 0.25% interest rate, you would earn $25 in interest. But that same $1,000 in an account for 20 years with a 0.5% interest rate would earn $105 in interest. You can use the savings calculator above to compare other options.
