Savings Calculator: Build Wealth with Compound Interest
Plan your savings journey and see how your money can grow over time with compound interest
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How It Works
Savings growth comes down to two things: how much you put in regularly, and compound interest. Compound interest means you earn interest on your interest—so $1,000 at 5% becomes $1,050 after a year, then $1,102.50 the next year (because you earned interest on that extra $50 too). Over time, this snowballs.
The key is to start early and be consistent. Automate your savings—set up an automatic transfer on payday so you don't even think about it. Aim for a high-yield savings account (4-5% instead of 0.01%) and watch the difference compound. Build your emergency fund first (3-6 months of expenses), then focus on other goals like a house down payment or retirement.
Common Savings Mistakes
Starting too late: The biggest mistake people make is waiting to start saving. Someone who starts at 25 with $200/month ends up with $525,000 more at retirement than someone who starts at 35 with $400/month—despite putting in $24,000 less. Time matters more than amount. Start with whatever you can, even $25-50/month.
Keeping money in terrible savings accounts: If you have $50,000 sitting in a traditional bank account earning 0.01%, you're making $5 a year. Move that to a high-yield savings account earning 4.5% and you're making $2,250 a year. That's a $2,245 annual difference for literally 20 minutes of work to open a new account.
Not having clear goals: Vague goals like "save more money" don't work. Set specific targets: "Save $15,000 for emergency fund by December 2025" or "Save $5,000 for vacation by next summer." People with specific goals save 3x more than those without them.
Ignoring employer 401(k) matches: If your company matches 3% and you don't contribute, you're turning down free money. That 3% match on a $60,000 salary is $1,800/year, which becomes $170,000 over 30 years. Always contribute at least enough to get the full match.
Frequently Asked Questions
How does compound interest work?
You earn interest on your interest. So $1,000 at 5% becomes $1,050 after a year. Year 2, you earn 5% on $1,050 (not just the original $1,000), so you end up with $1,102.50. That $2.50 extra is from earning interest on last year's interest. Over decades, this snowballs dramatically.
What's a good interest rate for savings?
Right now (2024), high-yield savings accounts are paying 4-5%, which is great. Traditional bank accounts pay like 0.01%, which is terrible. Online banks (Ally, Marcus, etc.) generally have the best rates because they have lower costs. Always make sure it's FDIC insured—don't chase super high rates from sketchy places.
How much should I save each month?
The classic rule is 20% of your income, but that's not realistic for everyone. Start with whatever you can—even $50-100/month adds up. The 50/30/20 rule says 50% for needs, 30% for wants, 20% for savings. If you can't hit 20% yet, increase your savings by 1% each year.
Should I prioritize paying off debt or saving?
If your debt has a higher interest rate than what you'd earn saving, pay off the debt first. But keep at least $1,000 in savings even while tackling debt—unexpected expenses always hit at the worst time. For low-interest debt (under 4-5%), you can save and pay it off at the same time.
What's the difference between simple and compound interest?
Simple interest only calculates on your original amount. Compound interest calculates on your original amount plus all the interest you've already earned. Example: $1,000 at 5% for 10 years with simple interest = $500 earned. With compound interest = $628.89 earned. That's 26% more just from compounding.
How often should interest compound for maximum growth?
Daily is technically best, but the difference between daily and monthly compounding is tiny. What matters way more is the APY (annual percentage yield). A 4.5% APY compounded monthly beats a 4.0% APY compounded daily. Focus on finding the highest APY, not obsessing over compounding frequency.
What's the best savings account type for emergency funds?
High-yield savings accounts. They pay way better interest than regular savings accounts, you can access the money instantly when you need it, and they're FDIC insured (protected up to $250k). Money market accounts work too. Don't use CDs for emergencies—you'll pay a penalty if you need the money early.
How much should I have in my emergency fund?
3-6 months of living expenses is the target. If you have a stable job, 3 months is probably fine. If you're self-employed, freelance, or work in an unstable industry, go for 6-12 months. Add up your rent/mortgage, food, utilities, minimum debt payments, and basic needs—then multiply by 3-6.
When should I consider investing instead of just saving?
After you have your emergency fund and you've paid off high-interest debt. For goals 5+ years away (like retirement), investing typically beats savings accounts over the long haul. For goals under 5 years (like a house down payment), stick with savings—you don't want to risk a market crash right when you need the money.
How do taxes affect my savings growth?
Interest you earn is taxable. If you're in the 22% tax bracket and earn 4% interest, your actual return after taxes is about 3.12%. For long-term savings, consider Roth IRAs—you pay tax upfront, but then all the growth is tax-free. For regular savings accounts, you just report the interest on your taxes each year.
What's the 72 rule and how does it apply to savings?
It's a quick way to figure out how long it takes to double your money. Just divide 72 by your interest rate. At 3%, your money doubles in 24 years (72÷3=24). At 6%, it doubles in 12 years. It's a handy mental shortcut to see why higher interest rates matter so much over time.
Should I use multiple savings accounts for different goals?
Yes—it helps you stay organized and not accidentally spend money earmarked for something specific. Use a high-yield savings account for your emergency fund, CDs for medium-term goals (1-5 years), and consider a Roth IRA for long-term goals. Most banks let you open multiple accounts and name them ("Emergency Fund," "Vacation," etc.).