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Your savings account isn’t just a safe place to store your extra cash; it can also serve as a tool to grow your wealth over time through interest.
Whether you’re building your emergency fund, working toward a down payment on a new home, or simply stashing away money to splurge on a gift for yourself, a savings calculator can help you determine how much you’ll need to deposit over a specific period of time to meet your goals.
How We Calculate Your Savings
To use this savings interest calculator, there are a few details you’ll need:
- Initial contribution: How much you plan to deposit into your account upon opening. Some accounts require a minimum deposit, so it’s important to know how much you’re able to invest in the beginning.
- Monthly contribution: Even if you only have a few dollars to spare, begin building the habit of contributing to your savings regularly. You can set up direct deposit from your paycheck or your checking account into your savings on a regular basis to simplify the process.
- Timeline: The number of months or years you have to meet your goal. If you’re working toward a down payment on a house, you may have a specific time frame in mind. If you’re building an emergency fund, your time frame may be more flexible.
- Annual interest rate: This is the APY offered on your savings account. Look into whether your account will compound interest monthly, quarterly, or annually. Use this detail to compare different accounts and see the differences in your potential interest earnings.
How to Maximize Savings Interest
The first thing you’ll need to maximize your interest earnings is a savings account with a great interest rate. The national average for interest-earning savings accounts is currently 0.07% APY, but you can earn upwards of 1.5% with a high-yield account.
You can also maximize interest by evaluating how you save.
You may choose to simply contribute a lump sum into your account and allow interest to grow on that sum until you’re ready to take it out. For instance, if you contribute $5,000 to a savings account earning 1.5% APY today, that principal would increase by about $75 after one year.
You can maximize your earnings much more effectively, though, by regularly contributing to your account so there’s more principal available to grow. Use the calculator to illustrate how much faster your money will grow just by contributing $50 or $100 each month to your total savings.
Don’t forget to browse our savings rate table to compare different savings accounts and find the perfect match for your needs. And to learn more about savings, check out our Emergency Savings Guide.
Using the same example, if you put $5,000 to an account earning 1.5% APY today, but then contribute an $100 dollars each month, you’d increase your total by about $1,285 after one year, which includes $85 of interest earnings.
As interest compounds on your growing principal, you’ll reach your savings goal even more quickly.
Know Your Savings Options
For short-term savings or cash you’ll need access to in case of emergency, consider a high-yield savings account. These accounts are FDIC-insured and may be offered by large brick-and-mortar banks, but those with the highest yields are typically offered by online banks.
You may also consider other high-interest earning but relatively accessible savings vehicles, such as money market accounts or certificates of deposit with terms that align with your needs.
Conversely, you may choose to store your longer-term investments and savings in a CD with five-year terms or higher, or an IRA. Your cash won’t be as immediately accessible, but you can earn higher returns.
Do your research to determine minimum balances you may need or monthly fees you’ll be charged before opening any new account.