Savings Calculator

What this calculator tells you

A savings account grows in two ways: the deposits you make and the interest those deposits earn. This calculator shows the balance of an account that receives a regular monthly deposit and compounds monthly at a stated annual rate, along with the total you deposited and the interest added.

It is a good model for a simple savings habit, such as putting a fixed sum aside each month for a holiday, a home deposit or a rainy day. It shows how the habit and the rate combine to build a balance over time.

How the balance is worked out

Each monthly deposit earns interest from the month it is made. The calculator uses the monthly rate, which is the annual rate divided by twelve, and grows each deposit over the number of months that remain. The balance at the end is the sum of all those grown deposits. The interest earned is the final balance minus the total deposited.

A worked example

Suppose you deposit 200 each month into an account paying 4% a year, compounded monthly, for five years. You deposit 12,000 in total. The balance at the end is about 13,260, so the interest earned is about 1,260. Most of the growth comes in the later years, because the early deposits have longer to earn interest.

Assumptions and limits

The calculator assumes the rate stays fixed, the deposits are made on time, and no withdrawals are taken. Savings accounts often change their rates, and some have minimum balances or limits on the number of withdrawals. Tax on interest and any account fees are not included, and they reduce the balance you keep.

Interest rates on savings are often lower than inflation in some periods. A balance that grows in cash terms can still lose purchasing power if prices rise faster, so compare the result with the inflation rate you expect.

Building the habit

The calculation is most useful when it turns into a standing order. Set the monthly deposit on the day you are paid, so the money is saved before it can be spent. Increasing the deposit each time income rises keeps the balance growing faster than the rate alone would allow.

Use separate accounts for separate goals, so you can see progress towards each one. A single balance is hard to read, while a named account for a holiday or a home deposit makes the target and the progress clear.

Review the interest rate periodically. Rates on savings accounts change, and an account that paid well when you opened it may fall behind others. Moving the money is often worth the effort when the gap is large.

Using the result

Use the calculator to set a monthly deposit that reaches a target by a date you choose, by testing different deposit amounts. Then check whether the account you plan to use has an interest rate that matches the calculation, and whether the money is accessible when you need it. Keep money for short-term goals in accounts that suit those goals, rather than in investments that might fall when you need the cash.

Choosing where the money sits

The rate matters less than whether the money is available when you need it. For goals within a few years, choose an account that pays a fair rate and allows withdrawals without penalty. For goals further away, consider whether the extra return from other investments justifies the chance that the value falls at the wrong time. Match the account to the date of the goal, not only to the rate on offer.