Savings Calculator: How much can I save?

How much Money Should you be Saving?

There's no one-size-fits-all answer when it comes to how much you should be saving. Everyone has their own unique circumstances, but the general recommendation is to save a minimum of 20% of your income every month.

While 20% is a good amount to start saving, it’s still best to consider your financial goals. For example, if your savings goal is short-term or long-term will play a big role in determining your savings goal. It’s also important to know what you're saving for - an emergency fund, retirement, a new car, or a home loan deposit?

Using a savings calculator is a helpful tool to understand how long it will take for you to reach your saving goal. To use this tool, you just need to input the following details:

• Your starting deposit

• How much you will be depositing and the frequency (weekly, fortnightly, monthly)

• The interest rate

• Savings term

It can also be beneficial to seek a high-interest savings account to take advantage of the interest accrued over time. With a myriad of choices in the market, it pays to compare different savings accounts to get to know which one is best for you. This is where a savings calculator will come in handy to compare different savings options. You'll be able to see how your savings could be impacted by having different deposit amounts, interest rates and savings terms.

How to Calculate Interest Earnt on Savings

The interest you could earn on your savings is based on your initial deposit, along with the interest you'll continue to earn, usually on a daily basis. You'll earn interest immediately on the amount you initially deposit to your savings account, and you'll also continue to earn interest on the accrued amount. This is known as compound interest.

A savings calculator will automatically calculate the interest you could earn from your savings, but if you wanted to calculate it manually, a formula you can use is:

A = P(1 + r/n)nt

Where:

A = ending balance

P = initial deposit

r = annual interest rate, as a decimal rather than percent (also called APR)

n = number of time interest is compounded per time period (nt)

t = time period

To use as an example, let’s say you have an initial deposit of $10,000 and an annual interest rate of 5% for over 5 years, with interest compounding on a monthly basis.

A = ending balance

P = $10,000

r = 0.05%

n = 12

nt = 1

So using the formula, it will be:

A = P(1 + r/n)^nt

A = 10,000 x (1 + 0.05/12)^(12)(5)

A = 10,000 x (1 + 0.004166667)⁽⁶⁰

A = $12,833.59

You’ll have $12,833.59 by the end of the 5-year term. The more money you regularly deposit and the longer you save, the more you can earn on interest. So, it’s recommended to save regularly to take advantage of compound interest and high interest savings accounts.

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