Savings Calculator

How to calculate your savings growth

Use our savings calculator to project the growth and future value of your savings or investment over time. It uses the compound interest formula, giving options for daily, weekly, monthly, quarterly, half-yearly and yearly compounding.

If you want to know the compound interval for your savings account or investment, you should be able to find out by speaking to your bank or financial institution. It's also worth noting that our savings calculator also allows you to enter negative interest rates, should you wish to.

Before exploring some of the diverse options available for places to grow your savings, let's address a few frequently asked questions about our calculator, inspired by user feedback.

What is the effective annual rate?

The effective annual rate (also known as the APY or AER) is the rate that actually gets paid after all of the compounding. When compounding of interest takes place, the effective annual rate becomes higher than the nominal interest rate. The more times the interest is compounded within the year, the higher the effective annual rate will be. You can learn more about effective annual interest rates in our article here.

Why does a 5% APY yield less than a 5% nominal interest rate?

If you're comparing a APY/AER with a nominal interest rate, it's important to recognize that an APY incorporates the effects of compounding interest within the year, while a nominal rate does not. For this reason, it can make it seem like you'll end up with less money using an APY.

Let's explain it with a comparison. We'll say your interest rate is 5% per year compounded monthly:

• Nominal Rate (compounded monthly): If you have a 5% per year nominal interest rate compounded monthly, this effectively becomes 5.12% APY due to the addition of interest on top of interest earned in previous months (compounding).
• APY (already compounded): Conversely, if you start with a 5% APY, which indicates a rate that already includes compounding, the equivalent nominal rate (if you were to reverse the calculation) would actually be around 4.89%.

You're therefore comparing a 4.89% nominal rate (5% APY) with a 5% nominal rate (5.12% APY). So, you'll earn more if your 5% quoted rate is a nominal rate, rather than a APY/AER.

Now we're finished with the frequently asked questions, let's delve into some common ways to save and maximize your savings potential.

What is the best way to save?

Whether you've got a specific savings goal in mind, from a new car, dream holiday, first home or just securing a comfortable retirement, it can be tricky to work out where to put your money to enhance your savings growth. So, let's break down some of the more common options available to you.

Exploring your options

• Savings Accounts: A staple for risk-averse individuals, savings accounts offer you a secure place to store your funds, though interest rates are normally quite low. Check out Bankrate for a useful comparison of the best savings account rates.
• Stock Market Investments: If you're seeking higher returns and are willing to embrace market volatility, the stock market can be a rewarding place. If you consider yourself a beginner, you can start with guides from Investopedia to understand the basics.
• Tax-Advantaged Accounts: In the US, Individual Retirement Accounts (IRAs) provide tax advantages for retirement savings. Similarly, in the UK, Individual Savings Accounts (ISAs) offer a tax-free way to save and invest. They're worth considering. Investor.gov (US) and Money Helper (UK) offer detailed information on these options.
• Peer-to-Peer Lending: This is an alternative investment with potentially higher returns than traditional savings, albeit with increased risk. Platforms like Lending Club provide an opportunity to lend money directly to other individuals or businesses.

Risk tolerance

Before you dive in, it's always advisable to consider and assess your personal risk tolerance: Are you risk-averse or are you inclined towards a high risk, high reward strategy? Diversification - spreading your investments across various channels - can help mitigate risk and maximize returns. The Motley Fool offers an excellent guide on how to diversify your investments effectively.

Seeking professional advice

For personalized advice, you may wish to consult a qualified, independent financial advisor. An advisor can tailor investment strategies based upon your personal circumstances, risk tolerance and financial goals.

Through regular reviews with your financial advisor, you can adapt your investment strategies to reflect changes in your life circumstances, market fluctuations, or evolving financial objectives, ensuring your plan remains aligned with your goals. By following their guidance and having these regular reviews, you can feel more assured that your savings are invested well to make your money work best for you at each stage of your life.

To help you find a reputable advisor, consider the Financial Planning Association (US) or Unbiased (UK).

Financial Independence, Retire Early (FIRE)

FIRE (Financial Independence, Retire Early) is a lifestyle movement that looks to adopt strategies of frugality, extreme saving and investment in order to achieve financial independence and early retirement. Originally discussed in the 1992 book "Your Money or Your Life" by Vicki Robin and Joe Dominguez, the concept has become increasingly popular among millennials. You can read more about the concept of FIRE here.

If you're interested in the idea of retiring early, our savings calculator can help you work out forecasts on how to achieve the goals you want to hit.

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