Savings Calculator – See your money grow over time

How to use this savings account calculator?

This calculator uses the compound interest formula with the annual percentage yield you entered and assumes monthly compounding.

Compound interest means you earn interest not just on your initial deposit but also on the interest that accumulates over time and monthly compounding means those interests are earned monthly.

For example, if you save $1,000 at 5% annual interest rate compounded monthly, you’ll have a total of $1,051.16 after one year. $51.16 earned in interest earned, and not simply 5% × $1,000 = $50.

The annual percentage yield (APY) of a savings account offering a 5% annual interest rate compounded monthly is 5.116%.

Adjust the APY and contribution values to see how they impact your future balance.

Key terms to know when choosing a savings account

• Annual interest rate:

  The annual interest rate is the percentage a bank or financial institution pays you for keeping your money deposited with them. It helps to calculate the interests earned on your investment at the end of the compounding period. It is not the exact annual return on investment as it does not take into account the effect of the compounding period, the annual percentage yield does.

• Compounding period:

  The interval at which interest is calculated and added to the principal balance of your account. The frequency of compounding affects how quickly your money grows. Shorter compounding periods (daily or monthly) mean interest is calculated and added more often, resulting in faster growth due to interest-on-interest effects. In practice there is very little difference between daily and monthly compounding.

• Annual Percentage Yield (APY):

  Always compare APY as it takes into account the effect of the compounding period. For example, an annual interest rate of 5% compounded daily is equivalent to an APY of 5.127%, while an annual interest rate of 5% compounded monthly is equivalent to an APY of 5.116%.

• Minimum balance requirements:

  Some accounts charge fees if your balance falls below a certain amount.

• Fees:

  Look for accounts with low or no fees to maximize your earnings.

• High-Yield accounts:

  This type of account offer better interest rates but may have stricter requirements.

Savings accounts and the FIRE Perspective

Pros:

• Safe and secure: Savings accounts are insured—up to $250,000—by the FDIC for banks and the NCUA for credit unions, protecting your money from loss.

• Quick access: Funds can be withdrawn easily, making savings accounts ideal for emergencies or unexpected expenses.

• Reliable but modest growth: While offering lower returns, savings accounts provide a safe way to earn interest on your cash.

Cons:

• Low returns: Most savings accounts, even high-yield ones, don’t keep up with inflation, limiting their usefulness for long-term wealth building.

• Opportunity cost: Funds in a savings account miss out on potentially higher returns from investments like stocks, ETFs, or real estate.

• Account restrictions: Withdrawal limits and maintenance fees on some accounts can chip away at your earnings.

The bottom line

Savings accounts, particularly high-yield savings accounts, are ideal for short-term financial goals, such as:

• Building an emergency fund.

• Storing cash you’ll need within the next 3–12 months, such as for a down payment or a business investment.

For funds you don’t need immediate access to, consider:

• Paying off high-interest debt first.

• Accelerating your mortgage repayments.

• Investing in the stock market via index funds.

• Exploring real estate opportunities to build long-term wealth.

You can use our FIRE journey planner to determine the best strategy for your financial goals and current situation.