See how your savings grow with compound interest
When you save regularly and earn interest, two things work in your favour: your contributions accumulate, and interest compounds on your growing balance. The longer you save, the more powerful the compounding effect becomes.
FV = P × (1 + r)^n + PMT × [((1 + r)^n − 1) / r]
Where P is the initial amount, PMT is the monthly contribution, r is the monthly interest rate, and n is the total months.
Over 20 years with a 5% annual return:
| Starting amount | Monthly contribution | Final balance | Total contributed |
|---|---|---|---|
| $0 | $200 | $82,207 | $48,000 |
| $5,000 | $200 | $95,527 | $53,000 |
| $10,000 | $200 | $108,847 | $58,000 |
| $10,000 | $500 | $214,207 | $130,000 |
The interest rate has a dramatic effect over long periods. $300/month for 30 years:
| Interest rate | Final balance | Interest earned |
|---|---|---|
| 0.5% (typical bank) | $112,458 | $4,458 |
| 4.5% (high-yield) | $228,156 | $120,156 |
| 7% (investment) | $365,991 | $257,991 |
The difference between a 0.5% savings account and a 4.5% high-yield account is over $115,000 on the same contributions over 30 years. Moving idle cash from a regular account to a high-yield savings account is one of the simplest high-impact financial moves available to most people.
Financial planning generally separates savings into two categories. Emergency fund: 3–6 months of expenses in a liquid, accessible account — typically a high-yield savings account. Long-term savings: money you will not need for 5+ years, which can be invested for higher returns with greater risk tolerance. Mixing the two — keeping long-term savings in a low-yield account or keeping emergency funds in illiquid investments — is a common and costly mistake.
It uses the compound interest formula with monthly compounding and regular contributions. Enter your starting balance, monthly contribution, annual interest rate, and number of years to see the projected balance and total interest earned.
For a high-yield savings account, use 4–5% (current rates in 2024–2025, though these fluctuate with the Federal Reserve rate). For a standard bank account, use 0.5–1%. For a diversified investment portfolio, historical averages suggest 6–8% for balanced portfolios and 7–10% for equity-heavy portfolios.
Yes, though the difference is modest. Monthly compounding produces slightly more growth than annual compounding at the same stated rate. Most savings accounts and many investment accounts compound monthly or daily.
A common rule of thumb is 20% of take-home pay, split between emergency fund, retirement, and other goals. If 20% is not feasible, start with whatever is manageable and increase by 1% per year. The most important factor is consistency — regular small contributions outperform sporadic large ones over time.
No — this shows nominal (before inflation) growth. To estimate real purchasing power, subtract expected inflation from your interest rate. If your savings earn 4.5% and inflation is 3%, your real return is approximately 1.5%.