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Savings Calculator: Estimate Growth Over Time

Cathie Ericson5-Minute Read
PUBLISHED: November 30, 2020 | UPDATED: March 23, 2022

Looking forward to your “golden years” of retirement? Most of us envision endless days playing golf (or video games, if that’s more your style), traveling to exotic lands, and visiting family and friends. In fact, the majority of retirement plans include a life of leisure, and also one of largesse.

However, the truth is that your later days could be grim indeed if you don’t adequately save toward retirement and other life goals, which is more important than ever before. That’s because life is expensive, but also until recently, many people received a pension or other retirement payout from their company to help pad those later years, an arrangement that’s far less common today. If you’re relying solely on Social Security to cover your budget, you are likely to be disappointed.

The good news is that the earlier you start saving, the less you actually have to save overall to have even more money. Unbelievable, right? The secret to this math lies in “compound interest,” which means that the earlier those savings begin, the faster the goal will be achieved. Want to see this principle at work? Our free and easy Savings Calculator can help you determine whether you’re on track to reach your goal.

Savings Calculator

We want to help you get where you’re going – in order to visit those grandkids and enjoy the warm weather worthy of a snowbird. That’s why we created this simple calculator that will keep you on track toward your savings goal.

Here are the figures you need to put in the savings account calculator:

  • Initial deposit: How much do you currently have in the account as your starting balance?
  • Monthly or annual contribution: How much do you anticipate contributing in an annual or monthly deposit?
  • Investment time span: How many years do you have until retirement?
  • Estimated rate of return: How much will your accounts earn? (The average rate of return for stock accounts is 10% but that number can fluctuate so it is smart to choose a more conservative figure. And other savings vehicles, like savings accounts, will earn less.)
  • Compound frequency: This refers to how often accumulated interest is paid out; if you’re unsure, you can choose an annual interest rate.

Enter those numbers for the calculator output, which is your future balance, or the future value of your account.

Savings Calculator FAQs

So that’s the simple explanation of how the calculator works, but you’re probably curious why it functions as it does and how to make the most of it. Let’s cover those common questions below.

How Much Should I Save?

If you’ve started playing with the calculator, you might be wondering how much you need to save to arrive at a solid retirement savings rate. Don’t let the number alarm you if it’s a large lump sum; the more important thing to do is figure out how much you need to save regularly to get there. That’s the goal of the savings calculator – to help you see the importance of establishing a regular savings plan and find out if you’re on track to reach your financial goals.

The earlier you start the better (although it’s never too late!). If you’re a younger investor just starting out, you’re fortunate to have time on your side. Input various sums into the savings calculator to see how the interest compounds, and you’ll notice that ultimately you’ll have to save less of your own money to achieve your goals as you reap the biggest benefits of compounding interest.

What Is Compound Interest?

We’ve mentioned this a lot so it’s high time we explained what we mean. Compound interest is an amount of money earned at regular, specified intervals and then added to the principal, so that even more compound interest earnings continue to be added. So that means if your account balance is $1,000 and it earns $10 worth of interest, the account is now worth $1,010. So the next time the interest compounds, it’s being added to $1,010 rather than just $1,000.

You can see how the numbers will continue to grow – and grow faster the more you have. That’s why young savers can retire by making smaller contributions of earned income given that the interest keeps getting added on, whereas older savers must contribute a much larger percentage of their earned income because their money doesn’t have as long to grow and compound.

As you can see, compound interest is different than just simple interest, which is added to the principal amount. With simple interest, the $1,000 earns $10 one year, then another $10 the next, rather than being added to the larger sum.

What If I Prefer Investing?

Ah, yes, we might have confused you by using the term “saving.” It doesn’t necessarily mean you are just sticking the money in the bank in a savings account. That’s one way to save, and it’s smart when you need to keep some cash liquid, but it’s not the best way to grow your money. In fact, the same principles are true whether investors save or invest. Because investing is just a form of saving, it just typically has a higher annual return – although that also comes with more volatility. 

The money you earn should be reinvested whether it is in interest earning accounts (savings, CDs) or investments that reinvest earnings. If the earnings are left in the account to be reinvested, the results are the same, as future rates of return are earned on a larger principal.

How Do I Predict My Rate Of Return?

Sometimes you might know exactly how much your return is, such as when you put your money in interest-bearing accounts, like high yield savings accounts or CDs. These accounts disclose their APY, or annual percentage yield, based on how much interest you will earn in the account in a year, assuming that you don’t add or remove funds from the account during that time.

However, there are other kinds of accounts, like stocks and bonds, which fluctuate each year, meaning you can’t predict if they might go up or down. That’s why you want to be clear on your appetite for volatility, also known as “risk tolerance”; in other words, if you will be too upset to see your money dwindle if the stock market goes down.

While no one can tell you what the stock market will do, you should note that it has always eventually gone up if you look at its history, and that means that most investors come out ahead over the long run. You should always talk to a financial advisor, however, for advice on your specific situation.

And it’s wise to balance more volatile investments with safer ones that might not go up as much but also won’t lose their value. Again, a financial advisor can help you make the decisions that are right for you. Even if the stock market has had some lofty “highs,” it’s smart to use conservative estimates of likely future earnings when estimating the future value of savings so you don’t shortchange yourself by assuming your money will go up more than it actually does.

Summary: Save Early And Save Often

As you can see, the earlier you start saving, the better. It’s vital to treat saving as a key part of your budget; experts call it “paying yourself first.” By taking a disciplined approach and watching your savings grow with the savings calculator, you can help stay on target for that retirement you’ve been dreaming of.

This article might have raised some questions about stocks, savings accounts, APY and more. If you want to learn more about your personal finances, visit our library of articles to find out everything you need to know to be financially savvy.

Cathie Ericson

Cathie Ericson writes about personal finance, real estate, small business, education, retail/ecommerce and other topics for a host of brands and websites. Her work has been featured on major media websites, including U.S. News & World Report, Forbes, Business Insider, The Oregonian, Industry Dive, Boston Globe, CNBC, MSN.com, Realtor.com and Yahoo Finance, among many others. Find her @CathieEricson.com.