Consumer Savings Calculator Basics

You can use the simple savings calculator to determine how much your saving investments can grow using the power of compound interest. It will help you estimate your total savings over a given period of time. Consistent savings and investments over a number of years can be an effective method to accumulate wealth. Even small additions to your savings add up over time.

People save for various reasons such as for major purchases such as a house and auto. Savings also help for future investments such as college, marriage, vacation or retirement. Whatever the reason for saving, it is better to have a savings plan for these life goals beforehand to ensure a positive financial outcome. This savings calculator will help you determine exactly how much you need to contribute each month to reach your particular financial goal in the time you need.


How To Use This Savings Calculator

This savings calculator will help you estimate your total savings over a given period of time. This calculator considers many different factors such as your initial investment deposit, monthly contribution, annual percentage rate (APR), frequency of compounding interest and the number of years you invest in order to estimate the end balance of savings. Regarding savings accounts in particular, banks often use annual percentage yield (APY) is the interest rate compounded and expressed as an annual figure, wwhich is different and higher than APR. Don’t confuse them.

The savings calculator uses compound interest, where you can adjust the frequency from monthly, 3 months, 6 months or annually. This will significantly affect your savings growth so you should review with your bank what type of savings account you have. The calculator assumes that your monthly contribution occurs at the beginning of the month to take advantage of compounding interest. When selecting a savings account or other investment account (e.g., a money market account), try to select one with the highest APR and compound interest frequency (daily/monthly), with the minimum amount of administrative fees.

You will find that the most important factors affecting your total savings is the monthly contribution, the annual percentage rate (APR), the frequency interest is compounded and the duration of time you invest. Taking advantage of long-term compounded interest (interest gained on interest accumulated) is the key.


Savings Contribution Strategy

Savings Contribution Alternatives

Each individual has different priorities and goals in life. There is no “right way” to save for the future other than the strong recommendation that you should do some type of savings. Here are several general guidelines for you to consider:

Emergency Fund Rule

Think of this as a financial insurance policy. You should save enough to cover at least three to six months’ worth of living expenses. This emergency fund protects you when your income stops due to a loss of employment or medical illness. Determine what you need for three to six months of living expenses. Then use the savings calculator to determine how long you will need to save that amount.

10% Rule

This is a really simply savings strategy. You save a percentage of your income (10%) before you pay any expense. You never see it so you avoid the temptation of spending. It is “forced savings”. Use this savings calculator, setting the monthly contribution to 10% of your net monthly income. Set a two year savings duration to see how close you approximate the Emergency Fund Rule. Adjust the duration as needed.

50-30-20 Rule

This is a slightly more complicated savings strategy. Your total income is budgeted into three categories: 50% toward necessities (housing, food and non-discretionary bills; 30% discretionary spending (dining and entertainment) and 20% toward paying off debts and savings. You can review some of our other consumer financial calculators to help you do this.

Federal Reserve Recommendation

The Fed has determined that the average amount a consumer needs to resolve emergencies is about $2,000. This assumes that there is no disruption in your income, however. Your particular situation should be your primary guide as to the amount of savings required.


Can You Save Too Much?

Savings Factors To Consider

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects the funds depositors place in banks and savings associations. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. This means that while there is no limit to how much you may choose to deposit into a savings account, you should limit your savings to $250,000 per account and “split” savings accounts among different financial institutions.

There are other investment opportunities to earn passive income, such as equities, bonds or real estate. These generally offer higher rates of investment return versus savings accounts, but with higher risk and sacrifice of liquidity. A mixture between the two types is recommended based on your level of risk appetite.

The inflation rate in the US is between 2-3%. This is likely understated. The average saving account rates of return, particularly when considering taxes, are less than the inflation rate. This results in a loss of purchasing power for the saver. Consumers are forced to consider higher risk investments to get a better rate of return versus a savings account.

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