How to use this savings calculator
Enter the following details in our savings calculator to find out what you could earn on your savings.
If you have any doubts, scroll down to read our guide.
Initial deposit
Your initial deposit is the amount of money you plan to put into the savings account when you open it.
Contribution amount
This is a sum of money you will deposit on an ongoing basis so that your account grows. It’s optional and you can set it to any frequency you like.
Contribution frequency
This is how often you make your ongoing contributions. You can set it to make an annual, monthly, weekly or even daily contribution, whichever works best for you!
Time to grow
This is the period of time you commit to leave your money in the savings account without a withdrawal.
Annual interest rate (APY)
Also known as the yield, this is the interest rate you can expect to earn on your savings each year.
How savings account interest works
There are two types of savings interest: simple and compound interest.
Simple interest is the interest you earn if you simply make an initial deposit (or ‘principal’) and leave it alone for a fixed time period. Compound interest takes into account the interest your savings earn year on year, factoring in the interest you earn so that each year your yield grows.
This sounds complicated, so let’s demonstrate the two concepts with some simple math.
How to calculate interest on a savings account
To calculate the interest you will earn from your savings account, it’s important to first distinguish between simple interest and compound interest.
How to calculate simple interest
For simple interest, this easy formula can help you calculate what you will earn:
A (amount of money) = P (principal) x R (rate of interest) x T (time period)
This means, for example, that a deposit of $1,000 earning an interest rate of 4% APY for one year would earn $40. For two years, this amount would earn $80. For three, it would earn $120, and so on.
How to calculate compound interest
Most savings accounts, however, earn compound interest. Compound interest factors in the interest earnings that are deposited back into your account.
The formula for calculating compound interest is:
A = P (1 + [r / n]) ^ nt
These variables represent the following:
- A = the amount of money accumulated after n years
- P = the initial principal balance
- r = the annual interest rate
- n = the number of times the interest is compounded per time period
- t = the number of times periods the amount is deposited for
After a year of earning interest on the above-mentioned amount of $1,000, you will be earning 4% APY on $1,080, not $1,000, 4% of which is $43.20 rather than $40.
This pattern continues the further along you save, so your earnings over a five-year period will develop like this:
| Year | Initial amount | Interest rate | Earnings | Yield |
|---|---|---|---|---|
| 1 | $1,000 | 4% | $40 | $1,080 |
| 2 | $1,080 | 4% | $43.20 | $1,123.20 |
| 3 | $1,123.20 | 4% | $44.93 | $1,168.13 |
| 4 | $1,168.13 | 4% | $46.73 | $1,214.86 |
| 5 | $1,214.86 | 4% | $48.59 | $1,263.45 |
As you can see, whereas simple interest would earn $200 on an initial deposit of $1,000 over five years, a savings account that compounds interest will normally earn a bit more.
The effect is more dramatic the more money you put in – at the above interest rate on a principal of $100,000, for example, compounding interest will earn you an additional $6,300 over five years.
How much money should I save?
There is no answer to this question that is right for everyone.
Everyone should save, but you should only feel the need to set aside an amount that you can afford to save consistently. It can be difficult at first to know how to save.
An ideal target would be to have enough to cover three to six months’ worth of basic living expenses if possible.
The important thing is to come up with a figure that will be easy to maintain over a long period, be it 10 or 20%. Save a small amount consistently until you reach your savings goal.
Considerations when opening a savings account
There are a number of things to consider when opening a savings account. In this section, we break them down so that you can decide for yourself what you need:
Minimum term length
Not everyone can afford to have their savings tied up for an extended period of time. You should consider how long you can put the money you plan to save away without touching it, as fixed term accounts cannot be touched until they have ‘matured’ – in other words, until the term is over. Most banks will charge considerable fees for withdrawing your savings early.
Banks offer fixed terms from as little as a month up to 5 years or more in some circ*mstances. The longer the term, the more interest you will earn, but make sure you can afford to do without whatever amount you deposit for the length of the minimum term you sign up for. If you find this difficult to predict, look out for no-penalty CDs, which charge no penalty on early withdrawals.
Interest rate
The interest rate associated with your savings account is the most appealing factor to customers in choosing a savings account. Banks offer from as little as 0.01% APY (USAA Savings & USAA Youth Savings; Chase Savings), on some accounts up to 5.65% APY on others. You can choose between various banks offering 5% interest savings accounts. Additionally, some banks may also offer 6% or even 7% savings account interest rates. It’s nice to earn as much interest as possible on your savings, but only do so if the other conditions are right for you.
Don’t be pulled in by an interest rate if the minimum term is too long or if other factors, such as the minimum deposit or additional fees, are too high for you.
Minimum deposit
Some banks offer accounts with no minimum deposit needed to open them, while others require a minimum deposit for their savings accounts. Minimum deposits could be as little as $500 or as much as $25,000 and vary significantly between banks. While accounts with higher minimum deposits often offer attractive rates, many savings accounts with no minimum deposit at all currently offer rates above 5%, so don’t feel like you have to pay in a large sum to get a good rate.
Additional fees, bonuses and penalties
Though many banks now advertise ‘no monthly account fees’ for their products, some banks still do charge account fees. Keep an eye out for these as they will eat into the interest that your savings earn over time. On the contrary, some banks offer bonuses to customers if they meet certain criteria, such as setting up a monthly direct debit for later contributions.
Some banks also offer no-penalty CDs, which means they won’t charge you for withdrawing from your account before the minimum term is up. Charging for early withdrawals is otherwise standard practice among banks, so you will lose money if you need access to your savings before the term ends. If you think you may need to access your savings before the term ends, it’s better to choose a no-penalty CD.
