Savings account earnings calculator

How long will it take you to reach your savings goal? Calculate your savings account earning power here.

When you’re saving towards a particular goal, it’s vital that you maximise your savings power. But if you have a savings figure in mind, such as a house deposit or the price of a round-the-world holiday, it can be difficult to work out how much money you need to get aside each month to reach your savings goal.

This is where our savings account earnings calculator comes in. By entering a few simple details about the money you have to invest and your regular deposit amounts, you can easily work out how much you’ll be able to save for up to 40 years.

Let’s take a closer look at how the calculator works and how you can maximise the earning power of your savings account.

How do you calculate savings?

The savings account earnings calculator lets you work out how much money you will be able to save over anywhere from 1 to 40 years. To calculate your earnings power, all you have to do is follow a few simple steps:

  • Choose the term. How long will you be investing money in your savings account? You can choose terms ranging from 1 to 40 years.
  • Enter your initial deposit amount. How much money do you have to start with? Simply enter “0” if you’re starting from scratch.
  • Choose your payment frequency. Making regular payments into your account is an excellent way to boost your savings balance. You can choose from weekly, fortnightly or monthly repayments.
  • Enter your regular payment amount. Type the amount you will regularly deposit into your account.
  • Enter the interest rate. Type the interest rate attached to your savings account into the field provided.
  • Click “Calculate”. The savings account earnings calculator will crunch the numbers and tell you the total amount you will save (as well as the total amount of money you will invest and interest you will earn) over your chosen investment period.

How do interest rates on savings accounts work?

Unlike everyday transactions accounts, savings accounts allow you to earn interest on the money you deposit. In this way, your account balance grows without you having to do a thing.

So, how is the interest calculated on a savings account? Interest is calculated as a percentage of your total deposit balance, such as 2.50% p.a. or 3.00% p.a. Most savings accounts feature a variable interest rate, which means your bank may raise or lower the rate in line with changes to the RBA’s official cash rate. However, term deposits are a savings product that offers fixed interest over a set investment period.

When you have money sitting in a savings account, it earns interest to help your nest egg grow in size. For example, your bank may calculate the interest payable on your savings balance at the end of each day, and then credit those interest earnings to your account each month or perhaps each quarter.

Savings accounts also offer the increased earning power of compound interest. This is when you earn interest on your initial investment amount as well as the interest you have already accumulated – in other words, when your savings account earns interest that is paid back into your account, you can now earn interest on your new total balance.

How do high-interest savings accounts work?

High-interest savings accounts offer a higher rate of interest than ordinary savings accounts. However, in order to earn the maximum interest rate available, you will usually need to satisfy specific terms and conditions, the nature of which varies depending on the type of savings account you open.

Examples of high-interest savings accounts include:

Why is it important to find the best interest rate?

Generally speaking, the higher the interest rate is, the greater the earning power of your savings account. While it’s also important to consider the fees and any other conditions that apply to an account, finding the best interest rate is a crucial factor when choosing where to invest and grow your savings.

Even a seemingly minor difference in interest rates can have a substantial effect on your overall savings power, so it’s essential to compare a range of savings accounts and shop around for the best possible rate.

Mark finds the best interest rate

As an example, let’s consider the case of Mark, a 25-year-old customer service consultant from Melbourne. Having spent money as fast as he’s been able to earn it throughout his 20s, Mark is keen to start putting some money aside each month with an eye towards saving a deposit for a house. He has $1,000 to invest and plans to deposit an extra $100 from his weekly pay, so Mark decides to compare two savings accounts – one that pays 2.50% p.a. and another that pays 3.00% p.a. – to see just how much difference the slightly higher interest rate makes.

As you can see in the table below, by choosing the account with a 0.50% p.a. higher interest rate, at the end of five years Mark will have saved an extra $383.43 without having to lift a finger.

Account AAccount B
Interest rate2.50% p.a.3.00% p.a.
Initial deposit$1,000$1,000
Ongoing weekly deposit$100$100
Amount saved after 1 year$6,289.57$6,307.69
Amount saved after 3 years$17,273.73$17,412.77
Amount saved after 5 years$28,820.91$29,204.34

The importance of regular deposits

The interest rate is just one factor you need to consider when calculating your savings power; another aspect you should look at is making regular deposits into your savings account. By setting aside a portion of your regular pay cheque each week, fortnight or month, even if it’s just a spare $20, you can reach your savings goal a whole lot quicker.

It’s also easy to automate this process so that money is taken out of your pay before you have a chance to spend it. You can set up a recurring transfer from your everyday account to your savings account via Internet banking, so you don’t have to worry about manually transferring the funds over each time you get paid.

Roberta's regular deposits

To demonstrate just how much more quickly you can increase your savings account earnings power by making regular deposits, let’s look at the example of Roberta. Roberta is 18 years old and doesn’t have a particular savings goal in mind, but she’s keen to start putting money aside for the future.

Roberta’s grandmother gave her a $1,000 cheque for her 18th birthday, and Roberta decides to deposit the money into a savings account. However, she also vows to become a more disciplined saver and start putting money aside on a regular basis.

Although Roberta doesn’t currently save a cent from her weekly pay, she realises that by cutting back on her online shopping sprees she can aside $50 a week. But if she really knuckles down and cuts down a range of other unnecessary expenses, like the gym membership she never uses, she realises she can save $100 each week.

The table below shows just how much difference making regular weekly deposits can make to Roberta’s savings account earnings when she deposits her money in an online savings account paying 3.00% p.a. Interest. As you can see, depositing $100 a week will see Roberta save $29,204.34 after five years, much more than the $15,183.06 she will save if she only deposits $50 a week.

$0 weekly deposit$50 weekly deposit$100 weekly deposit
Interest rate3.00% p.a.3.00% p.a.3.00% p.a.
Initial deposit$1,000$1,000$1,000
Ongoing weekly deposit$0$50$100
Amount saved after 1 year$1,030.45$3,669.07$6,307.69
Amount saved after 3 years$1,094.15$9,253.46$17,412.77
Amount saved after 5 years$1,030.45$15,183.06$29,204.34

So use our savings account earnings calculator to work out just how much money you can save in the next 1, 2, 5, 10, 20 or even 40 years. With the help of a realistic savings plan, you’ll be able to achieve your financial goal much sooner than you would have thought possible.

Picture: Shutterstock

Tim Falk

A freelance writer with a passion for the written word, Tim loves helping Australians find the right home loans and savings accounts. When he's not chained to a computer, Tim can usually be found exploring the great outdoors.

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