How saving with compound interest works
A savings account pays interest on your balance. That interest is added to the account and earns interest itself in the next period: compound interest. The longer you save, the stronger the effect. Add a fixed amount every month and your money grows in two ways, from your own deposits and from the interest.
The calculator works month by month. An annual rate of 4% is converted into an effective monthly rate of 0.327%, so that after exactly one year you have earned 4%. That matches the APY (annual percentage yield) banks quote. Monthly deposits are made at the end of each month.
balance = start × (1 + i)^n + deposit × ((1 + i)^n − 1) ÷ i
Here i is the monthly rate and n the number of months.
Example 1: how much will I have?
You have $2,000 in a high-yield savings account, add $200 a month and earn 4% APY. After 10 years:
- total deposited: $2,000 + 120 × $200 = $26,000
- final balance: $32,299.67
- interest earned: $6,299.67
Almost a fifth of the balance is interest. Over 30 years it would be almost half.
Example 2: how much should I save each month?
You want $20,000 in 3 years for a down payment or a car. You start with $2,000 and earn 4%. You need to save about $464.77 a month. Of the $20,000, you pay in $18,732 yourself and $1,268 comes from interest.
What difference does the rate make?
Small differences add up over time. Take a $10,000 starting balance, $100 a month and 20 years:
| Interest rate (APY) | Final balance | Of which interest |
|---|---|---|
| 1% | $38,746 | $4,746 |
| 2% | $44,283 | $10,283 |
| 3% | $50,747 | $16,747 |
| 4% | $58,295 | $24,295 |
That is why it pays to compare rates. Online banks often pay several times the national average on savings accounts. Certificates of deposit (CDs) lock in a rate for a fixed term, but you pay a penalty if you withdraw early.
Things to keep in mind
- Inflation: if prices rise faster than your savings rate, your money buys less over time. The inflation calculator shows how much buying power you lose.
- Tax: in the US, interest on savings is taxed as ordinary income. In the UK the Personal Savings Allowance lets basic-rate taxpayers earn £1,000 of interest tax-free (£500 for higher-rate). Cash ISAs are tax-free. The calculator ignores tax.
- Variable rates: most savings accounts have a variable rate that can change at any time, so the result is an estimate.
- Deposit insurance: FDIC insurance covers up to $250,000 per depositor, per insured bank, per ownership category. In the UK the FSCS protects deposits per person per banking licence.
Tips to save more
- Automate it. Schedule a transfer for the day after payday. What you don't see, you don't spend.
- Start early. Thanks to compounding, $100 a month from age 25 grows to far more than $200 a month from age 45.
- Build an emergency fund first. A common guideline is three to six months of essential expenses.
- Pay off expensive debt. Credit card interest is usually much higher than any savings rate. Check the numbers with the loan calculator.
Frequently asked questions
How do I calculate compound interest?
Multiply the balance by (1 + rate) each year. $1,000 at 3% is $1,030 after one year, $1,060.90 after two and $1,343.92 after ten. The calculator does this monthly and includes your deposits.
What is the difference between APR and APY?
APR is the simple annual rate; APY includes the effect of compounding within the year. Enter the APY your bank quotes; the calculator converts it into the matching monthly rate.
How long does it take to double my money?
Use the rule of 72: divide 72 by the interest rate. At 4% your money doubles in about 18 years without extra deposits.
Is interest on savings taxed?
In the US, yes, as ordinary income, and banks report it on Form 1099-INT. Rules differ elsewhere. This calculator shows amounts before tax.
Should I save or invest?
Savings are safe and easy to access but earn less. Investing in a diversified fund has historically earned more over long periods, with the risk of losses along the way. Money you need within a few years usually belongs in savings.
Can I calculate with a 0% rate?
Yes. Enter 0 to see how much you save from deposits alone, or a negative rate if fees exceed the interest.
Last reviewed: 2026-10-06. Results are estimates for information only.