# Savings Calculator

By Alastair Hazell. Reviewed by Chris Hindle.
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The nominal interest rate is the standard annual rate excluding compounding. The APY/AER figure includes compounding, and is often quoted on savings products.
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Increase deposits yearly with inflation?

To calculate:

• How much to save each month to reach a goal
• How long it might take to save a target figure

give our Savings Goal Calculators a try.

Use our savings calculator to work out the interest and future value of your savings, IRA, ISA, bond or investment.

Disclaimer: Whilst every effort has been made in building these savings calculators, we are not to be held liable for any special, incidental, indirect or consequential damages or monetary losses of any kind arising out of or in connection with the use of them. Full disclaimer. These tools are here purely as a service to you, please use them at your own risk.

## 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.

• 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.