Compound Savings Calculator

The single most useful thing this calculator can show you is how much of your final balance comes from contributions and how much comes from growth. Most people guess wrong.

Nearly half the balance is money the account earned rather than money you put in. Change the term to 35 years and the interest share crosses 60%, because the largest deposits have the longest time to compound.

This is also why the timing of contributions matters as much as the total. The same $60,000 contributed steadily over 25 years finishes far ahead of $60,000 deposited as a single lump at the end of year 24 - not because of any difference in the rate, but because every dollar has a different amount of time to work.

• FV - the final balance.
• PMT - the amount contributed each period.
• r - the interest rate per period. For monthly contributions at 6% a year, use 0.06 / 12 = 0.005.
• n - the total number of contributions. Monthly for 25 years is 300.

This is the future value of an ordinary annuity. Note that r sits in the denominator - which is exactly why results behave strangely when the rate approaches zero. At a 0% rate the formula divides by zero, so the calculator falls back to plain multiplication: contributions times number of periods.

Note. The first contribution earns interest for every remaining period. The last one earns almost none. That spread is what makes the growth curve bend upward rather than climb in a straight line.

Two savers both aim for a large retirement balance. One starts at 25 and contributes $200 a month for 40 years. The other starts at 45 and contributes $400 a month for 20 years - twice as much, for half as long.

Same total out of pocket. The early starter finishes with more than twice the balance, because the first decade of deposits compounded for thirty years afterwards. There is no way to recover that with a larger contribution later - the lost time cannot be bought back at any rate.

Run the calculator both ways with your own figures before deciding whether to increase the amount or simply start sooner.

Contributing monthly rather than annually is worth a little, not a lot. Money deposited in July compounds from July; money deposited once in December waited eleven months.

• Monthly is the sensible default and matches how most people are paid.
• Weekly adds a fraction of a percent over monthly - a difference of a few dollars a year on a typical balance. It is not worth the administrative hassle.
• Biweekly aligned to pay works well if you are paid fortnightly, because the money leaves before you can spend it.
• Annual lump sums are the weakest option unless the money genuinely would not have existed earlier.

Frequency matters far less than consistency. A missed month costs more than switching from monthly to weekly will ever gain.

The balance this calculator returns is nominal - what the account statement will say. Two adjustments change what it is actually worth.

• Fees. An annual charge of 1% does not remove 1% of your final balance. It removes 1% of your balance every year, which then cannot compound. At 6% growth over 30 years, a 1% fee cuts the ending balance by roughly a quarter. Fees are the most reliably controllable variable in the calculation.
• Inflation. At 3% inflation, money loses about half its purchasing power in 24 years. A balance of $200,000 in 30 years buys roughly what $87,000 buys today. To see the spending power, divide the projected balance by (1 + inflation) raised to the term.
• Tax. Interest in taxable accounts is generally taxed as it is credited, which removes a slice each year rather than once at the end.

Run the projection once with the headline rate, then again at a reduced rate that nets fees and tax. The second figure is the one to plan around.

1. Compare the contribution share to the interest share. If contributions dominate, your outcome is driven by discipline, not by the rate you negotiate.
2. Test sensitivity. Move the rate up and down by one percentage point and see how much the final figure swings. If a 1% change moves it dramatically, the plan is fragile and worth de-risking.
3. Check the target date against reality. A projection that reaches your goal at age 71 is not a retirement plan if you intend to stop at 65.
4. Re-run it as circumstances change. A pay rise, a new fee structure, or a revised goal all change the answer. This is a planning tool, not a forecast, and it is most useful used repeatedly rather than once.