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Aaron Carr
  November 2, 2018

Savings Calculator: Compound Interest for Savings, CDs & Money Market Accounts

A savings calculator is a great tool to calculate compound interest and estimate the value of savings over a period of time. Using the savings calculator above, you can see what your savings will be worth in the future and how quickly it will grow in a savings account, certificates of deposit (CDs) or money market account.

To learn more about what interest rates are available and what providers are paying the best interest rates for savings accounts, be sure to check out our article on the Best Online Savings Accounts.

How to Read Your Savings Calculator Results

Using a savings calculator to calculate compound interest, there are a few rules of thumb that savers should consider. For example, it would be unwise for savers to project average interest rates into the future far higher than those currently available with savings accounts or CDs — 2 percent to 3.25 percent at present.

Some rules of thumb for calculator outputs include:

  • Total future savings: If you use an annual percentage yield (APY) typical for savings products and a term of 1 to 5 years, then your total future balance won’t be much higher than your total contributions. However, if you use the savings calculator for a longer period of a high-interest rate, your savings may be as high as two or three times the total amount contributed.
  • Annual savings growth: With an average APY, annual growth will be equal to your new contributions for the year. However, if you use a high APY or if your initial deposit is substantial, annual savings growth may equal or exceed new annual contributions.
  • Total interest earned rule of thumb: When you use the compound interest formula with a low APY or term of under 5 to 7 years, total interest earned may only be a fraction of annual contributions. However, if you use a high-interest rate or a long-term, your total interest should be several times your annual contributions.

Interest Rate Rule of Thumb

Low APY
Average APY
High APY
High-yield Savings
1.75%
1.90%
2.25%
CDs
2.00%
2.50%
3.00%
Money Market
1.50%
1.80%
2.00%

How the Savings Calculator Works

The savings calculator we’ve constructed uses complex formulas to calculate compound interest on an initial deposit as well as additional contributions into the future. By inputting a number of years and an expected annual interest rate, users can use the savings calculator above to determine the actual dollar value they’ll have saved at various points in the future.

Savings calculators and compound interest formulas are frequently used by consumers to figure out when and how much they should save in order to have the greatest savings in the future. The expected interest can be earned a number of ways, including in an online savings account. Savings can then be used for a downpayment on a house, to fund retirement or pay for children’s education.

When examining the results provided by the compound interest formula in a savings calculator, consumers should look for their forecasted account growth to escalate from one year to the next as additional contributions are made and interest income accumulates.

Savings Calculator Inputs

To calculate compound interest on savings into the future, we have to know several factors which you’ll input into the calculator. The initial deposit in an account sets the starting point, but additional deposits and expected annual interest will determine how fast the account grows. The number of years dictates how long an account grows before reaching an expected value.

The four inputs you put into the savings calculator to calculate compound interest are:

1. Initial Deposit Amount

The initial deposit amount gives our savings calculator a starting point for your savings balance. This is the amount you plan to deposit upfront to start your savings account. Depending on your provider, you may need to meet minimum deposit requirements in order to open an account, but your initial deposit should start earning interest immediately.

2. Annual Contributions*

The annual contributions are how much you’ll deposit into your account each year. These deposits help your savings grow faster because interest is earned on both the initial deposit and new contributions. When computing your future savings, calculators should calculate compound interest on both the initial deposit and additional contributions as ours does above.

*Our calculator assumes that annual contributions are made in one time at the end of each year.

3. Annual Interest Rate

Determining your future savings balance requires an estimated APY over the life of your account. You can do this by looking at the rates available with products including high-yield savings accounts. Interest rates vary from year to year but estimating your account’s average yield should give you a conservative estimate for your savings.

4. Number of Years to Calculate Compound Interest

One of the most important factors to calculate compound interest is the number of years that interest will accumulate. In the savings calculator above, you can enter the number of years you’ll make annual contributions and earn interest. The calculator will then show how much you’ll have in savings at the end of that term.

Savings Calculator Outputs

A savings calculator can use the information provided to total the contributions made during the savings term and calculate compound interest for your savings. The calculator can then provide an expected balance for your savings at the end of the term, estimated annual gains and a chart of your savings growth over time.

The four outputs provided by our savings calculator are:

1. Total Future Savings

The calculator adds up the initial deposit and annual contributions for the number of years provided to calculate your total contributions. These figures are then put through a complex financial formula to calculate the compound interest anticipated on both the initial deposit and subsequent contributions to give you the estimated balance of your savings after the number of years provided.

2. Savings Growth Each Year

In addition to providing the expected balance of your savings at the end of the desired term, our savings calculator also provides the expected growth in your savings for each individual year included in the projection. This output shows why it’s important to calculate compound interest because savers can see how their account growth varies from year to year with additional contributions.

3. Savings Calculator Chart

Another output provided by our calculator is a chart of the expected growth of your savings over time, based on the factors provided. This chart also shows the significance of compound interest, as the growth of savings escalates over time with interest earned not only on new contributions but on previous contributions and prior interest payments as well.

4. Total Compound Interest Earned

The last output provided by the savings calculator above is the total amount of interest over the number of years provided. This is the difference between the total future balance of your account and your total investment — your initial deposit plus annual contributions. Total interest earned represents the portion of your account that you earned rather than contributed.

Savings Calculator Example

Let’s consider Brad, a fictional saver who has $1,000 that he’s received as a tax refund and wants to start saving for a down payment for a car. Brad could use his $1,000 to open a high-yield savings account and contribute an additional $250 at the end of each year. Using the compound interest formula in the calculator above, Brad can see how much he should have in, say, four years.

Compound Interest Calculator Projections

Year
Account Balance ($1,000 initial deposit, $250 annual contributions, 2% APY)
Account Balance ($1,000 initial deposit, $450 annual contributions, 2.5% APY)
1
$1,270
$1,475
2
$1,545
$1,962
3
$1,826
$2,461
4
$2,113
$2,972

Brad can input his starting balance and his anticipated annual contributions. For an interest rate, Brad can refer to our list of Best High-Yield Savings Accounts and see that the best annual percentage yields currently available today are about 2 percent.

Using that interest rate as the average expected annual interest rate, Brad can expect his savings account balance to be about $2,100 in 4 years. That would be enough for a down payment on a car worth about $21,000.

If, however, Brad decides to stretch has annual contributions to $450 and to use 12-month CDs instead, he can expect his savings to be worth almost $3,000 — enough for a down payment on a $30,000 car. This is because the Best CD Rates for 12-month CDs are about 2.50 percent. By increasing both his contributions and the expected annual interest rate, Brad can accumulate savings much faster over the same period.

Savings Account Types

The savings calculator above is a useful tool to calculate compound interest from many different types of accounts. Many people put savings in high-yield savings accounts to earn interest while maintaining access to their money while others use CDs, money market accounts or checking accounts for savings if they aren’t as worried about earning interest.

Four types of accounts for accumulating savings include:

1. High-yield Savings Account

High-yield savings accounts pay higher interest rates than traditional savings accounts while letting account holders access their money quickly. High-yield savings accounts typically limit savers to just six transactions per month. However, they’re easy to set up and can be accessed quickly if the need arises.

A high-yield savings account may be ideal for someone who is just starting to save and wants to earn higher interest than traditional bank savings accounts while maintaining quick access to his or her savings. This is ideal for someone saving for a large purchase like a down payment for a home or car. For more information on the best accounts currently available, be sure to check out our article on the Best High-Yield Savings Accounts.

2. Certificates of Deposit

Many banks and financial institutions sell certificates of deposit that allow savers to earn a predetermined APY for a set period of time. CDs often pay higher interest rates than other savings products but require savers to lock up their money for set periods and pay penalties for withdrawing money early.

CDs are great savings tools for people who may be tempted to spend their savings if it’s not separated from their account. Savers also need to be willing to give up access to their funds for an extended period, so CDs are best for people who have a long-term saving plan for things like educational expenses. For more information, be sure to check out our article on the Best CD Rates currently available.

3. Money Market Accounts

Money market accounts are another tool offered by many financial institutions. There are two types of money market accounts: money market mutual funds that are available from a mutual fund company and money market deposit accounts that are Federal Deposit Insurance Corporation (FDIC)-insured and available through most banks.

Money market accounts pay higher interest rates than those available from traditional savings, but they often have higher minimum deposit requirements to get started, so they’re best for savers who are starting with a higher balance and are saving to pay off a mortgage or car loan. Check out our list of the Best Money Market Accounts & Rates to learn more.

4. Business Savings Accounts

If you have funds in your business and prefer to deposit them in a business account rather than a personal savings account, then a business savings account may be a great option. These accounts typically pay interest on savings, allowing you to grow your account each month.

Business savings accounts aren’t always available for individual savers, and they don’t always pay interest rates as high as personal accounts. However, if you have a business and want to earn interest on your savings, a business savings account is a good option. For more information, be sure to check out our list of the Best Small Business Savings Accounts.

The Bottom Line

A savings calculator is a valuable tool used to calculate compound interest on savings over time. Using the calculator above, you can enter a starting balance, annual contribution amount, average annual interest rate and term in years to see how much you’ll have in savings sometime in the future. You can also adjust your savings as necessary to hit personal goals.

If you want to earn some of the best interest rates available on your savings, an online savings account is a cost-efficient account that also lets you maintain access to your funds in case of emergency. Salem Five Direct is the best online savings account provider we’ve found. Its online savings account pays 2.05 percent APY and requires just $100 to get started.

ABOUT THE AUTHOR:
Dock David Treece

Dock’s professional background is deeply rooted in the securities and investment advisory industry. As a former registered investment advisory rep and former registered securities rep, Dock assisted clients with critical personal financial planning and decision-making. As an experienced columnist, he has provided engaging and actionable commentary on financial markets and economic developments. While serving on the Finra Small Firm Advisory Board, he assisted industry regulators in understanding the state of the industry and regulatory initiatives.

A savings calculator is a great tool to calculate compound interest and estimate the value of savings over a period of time. Using the savings calculator above, you can see what your savings will be worth in the future and how quickly it will grow in a savings account, certificates of deposit (CDs) or money market account.

To learn more about what interest rates are available and what providers are paying the best interest rates for savings accounts, be sure to check out our article on the Best Online Savings Accounts.

How to Read Your Savings Calculator Results

Using a savings calculator to calculate compound interest, there are a few rules of thumb that savers should consider. For example, it would be unwise for savers to project average interest rates into the future far higher than those currently available with savings accounts or CDs — 2 percent to 3.25 percent at present.

Some rules of thumb for calculator outputs include:

  • Total future savings: If you use an annual percentage yield (APY) typical for savings products and a term of 1 to 5 years, then your total future balance won’t be much higher than your total contributions. However, if you use the savings calculator for a longer period of a high-interest rate, your savings may be as high as two or three times the total amount contributed.
  • Annual savings growth: With an average APY, annual growth will be equal to your new contributions for the year. However, if you use a high APY or if your initial deposit is substantial, annual savings growth may equal or exceed new annual contributions.
  • Total interest earned rule of thumb: When you use the compound interest formula with a low APY or term of under 5 to 7 years, total interest earned may only be a fraction of annual contributions. However, if you use a high-interest rate or a long-term, your total interest should be several times your annual contributions.

Interest Rate Rule of Thumb

Low APY
Average APY
High APY
High-yield Savings
1.75%
1.90%
2.25%
CDs
2.00%
2.50%
3.00%
Money Market
1.50%
1.80%
2.00%

How the Savings Calculator Works

The savings calculator we’ve constructed uses complex formulas to calculate compound interest on an initial deposit as well as additional contributions into the future. By inputting a number of years and an expected annual interest rate, users can use the savings calculator above to determine the actual dollar value they’ll have saved at various points in the future.

Savings calculators and compound interest formulas are frequently used by consumers to figure out when and how much they should save in order to have the greatest savings in the future. The expected interest can be earned a number of ways, including in an online savings account. Savings can then be used for a downpayment on a house, to fund retirement or pay for children’s education.

When examining the results provided by the compound interest formula in a savings calculator, consumers should look for their forecasted account growth to escalate from one year to the next as additional contributions are made and interest income accumulates.

Savings Calculator Inputs

To calculate compound interest on savings into the future, we have to know several factors which you’ll input into the calculator. The initial deposit in an account sets the starting point, but additional deposits and expected annual interest will determine how fast the account grows. The number of years dictates how long an account grows before reaching an expected value.

The four inputs you put into the savings calculator to calculate compound interest are:

1. Initial Deposit Amount

The initial deposit amount gives our savings calculator a starting point for your savings balance. This is the amount you plan to deposit upfront to start your savings account. Depending on your provider, you may need to meet minimum deposit requirements in order to open an account, but your initial deposit should start earning interest immediately.

2. Annual Contributions*

The annual contributions are how much you’ll deposit into your account each year. These deposits help your savings grow faster because interest is earned on both the initial deposit and new contributions. When computing your future savings, calculators should calculate compound interest on both the initial deposit and additional contributions as ours does above.

*Our calculator assumes that annual contributions are made in one time at the end of each year.

3. Annual Interest Rate

Determining your future savings balance requires an estimated APY over the life of your account. You can do this by looking at the rates available with products including high-yield savings accounts. Interest rates vary from year to year but estimating your account’s average yield should give you a conservative estimate for your savings.

4. Number of Years to Calculate Compound Interest

One of the most important factors to calculate compound interest is the number of years that interest will accumulate. In the savings calculator above, you can enter the number of years you’ll make annual contributions and earn interest. The calculator will then show how much you’ll have in savings at the end of that term.

Savings Calculator Outputs

A savings calculator can use the information provided to total the contributions made during the savings term and calculate compound interest for your savings. The calculator can then provide an expected balance for your savings at the end of the term, estimated annual gains and a chart of your savings growth over time.

The four outputs provided by our savings calculator are:

1. Total Future Savings

The calculator adds up the initial deposit and annual contributions for the number of years provided to calculate your total contributions. These figures are then put through a complex financial formula to calculate the compound interest anticipated on both the initial deposit and subsequent contributions to give you the estimated balance of your savings after the number of years provided.

2. Savings Growth Each Year

In addition to providing the expected balance of your savings at the end of the desired term, our savings calculator also provides the expected growth in your savings for each individual year included in the projection. This output shows why it’s important to calculate compound interest because savers can see how their account growth varies from year to year with additional contributions.

3. Savings Calculator Chart

Another output provided by our calculator is a chart of the expected growth of your savings over time, based on the factors provided. This chart also shows the significance of compound interest, as the growth of savings escalates over time with interest earned not only on new contributions but on previous contributions and prior interest payments as well.

4. Total Compound Interest Earned

The last output provided by the savings calculator above is the total amount of interest over the number of years provided. This is the difference between the total future balance of your account and your total investment — your initial deposit plus annual contributions. Total interest earned represents the portion of your account that you earned rather than contributed.

Savings Calculator Example

Let’s consider Brad, a fictional saver who has $1,000 that he’s received as a tax refund and wants to start saving for a down payment for a car. Brad could use his $1,000 to open a high-yield savings account and contribute an additional $250 at the end of each year. Using the compound interest formula in the calculator above, Brad can see how much he should have in, say, four years.

Compound Interest Calculator Projections

Year
Account Balance ($1,000 initial deposit, $250 annual contributions, 2% APY)
Account Balance ($1,000 initial deposit, $450 annual contributions, 2.5% APY)
1
$1,270
$1,475
2
$1,545
$1,962
3
$1,826
$2,461
4
$2,113
$2,972

Brad can input his starting balance and his anticipated annual contributions. For an interest rate, Brad can refer to our list of Best High-Yield Savings Accounts and see that the best annual percentage yields currently available today are about 2 percent.

Using that interest rate as the average expected annual interest rate, Brad can expect his savings account balance to be about $2,100 in 4 years. That would be enough for a down payment on a car worth about $21,000.

If, however, Brad decides to stretch has annual contributions to $450 and to use 12-month CDs instead, he can expect his savings to be worth almost $3,000 — enough for a down payment on a $30,000 car. This is because the Best CD Rates for 12-month CDs are about 2.50 percent. By increasing both his contributions and the expected annual interest rate, Brad can accumulate savings much faster over the same period.

Savings Account Types

The savings calculator above is a useful tool to calculate compound interest from many different types of accounts. Many people put savings in high-yield savings accounts to earn interest while maintaining access to their money while others use CDs, money market accounts or checking accounts for savings if they aren’t as worried about earning interest.

Four types of accounts for accumulating savings include:

1. High-yield Savings Account

High-yield savings accounts pay higher interest rates than traditional savings accounts while letting account holders access their money quickly. High-yield savings accounts typically limit savers to just six transactions per month. However, they’re easy to set up and can be accessed quickly if the need arises.

A high-yield savings account may be ideal for someone who is just starting to save and wants to earn higher interest than traditional bank savings accounts while maintaining quick access to his or her savings. This is ideal for someone saving for a large purchase like a down payment for a home or car. For more information on the best accounts currently available, be sure to check out our article on the Best High-Yield Savings Accounts.

2. Certificates of Deposit

Many banks and financial institutions sell certificates of deposit that allow savers to earn a predetermined APY for a set period of time. CDs often pay higher interest rates than other savings products but require savers to lock up their money for set periods and pay penalties for withdrawing money early.

CDs are great savings tools for people who may be tempted to spend their savings if it’s not separated from their account. Savers also need to be willing to give up access to their funds for an extended period, so CDs are best for people who have a long-term saving plan for things like educational expenses. For more information, be sure to check out our article on the Best CD Rates currently available.

3. Money Market Accounts

Money market accounts are another tool offered by many financial institutions. There are two types of money market accounts: money market mutual funds that are available from a mutual fund company and money market deposit accounts that are Federal Deposit Insurance Corporation (FDIC)-insured and available through most banks.

Money market accounts pay higher interest rates than those available from traditional savings, but they often have higher minimum deposit requirements to get started, so they’re best for savers who are starting with a higher balance and are saving to pay off a mortgage or car loan. Check out our list of the Best Money Market Accounts & Rates to learn more.

4. Business Savings Accounts

If you have funds in your business and prefer to deposit them in a business account rather than a personal savings account, then a business savings account may be a great option. These accounts typically pay interest on savings, allowing you to grow your account each month.

Business savings accounts aren’t always available for individual savers, and they don’t always pay interest rates as high as personal accounts. However, if you have a business and want to earn interest on your savings, a business savings account is a good option. For more information, be sure to check out our list of the Best Small Business Savings Accounts.

The Bottom Line

A savings calculator is a valuable tool used to calculate compound interest on savings over time. Using the calculator above, you can enter a starting balance, annual contribution amount, average annual interest rate and term in years to see how much you’ll have in savings sometime in the future. You can also adjust your savings as necessary to hit personal goals.

If you want to earn some of the best interest rates available on your savings, an online savings account is a cost-efficient account that also lets you maintain access to your funds in case of emergency. Salem Five Direct is the best online savings account provider we’ve found. Its online savings account pays 2.05 percent APY and requires just $100 to get started.

Visit Salem Five Direct