How the monthly deposit is worked out
Interest compounds monthly. Deposits go in at the end of each month, starting one month from today, and the months are counted from today to your target date. The APY is turned into the monthly rate that grows to it over a year.
Monthly rate: m = (1 + APY)1/12 − 1
Balance after n months: B = C × (1 + m)n + P × ((1 + m)n − 1) ÷ m
Deposit needed: P = (G − C × (1 + m)n) × m ÷ ((1 + m)n − 1)
With no interest: P = (G − C) ÷ n
Here G is the goal, C what you have saved, P the monthly deposit and n the number of months. The deposit is rounded up to the next cent, so the last balance can end a few cents over the goal. For the other mode, the calculator finds the first month in which the balance reaches the goal.
Worked example: $10,000 in 3 years
You have $2,000 and want $10,000 in 36 months, in an account paying 4.5% APY. The monthly rate is 1.0451/12 − 1 = 0.3675%. Over 36 months the $2,000 grows to $2,282.33, which leaves $7,717.67 to come from deposits. Each $1 a month grows to $38.4145 by the end, so the deposit is 7,717.67 ÷ 38.4145 = $200.903, rounded up to $200.91 a month. You put in $7,232.76, earn $767.44 of interest and end with $10,000.20.
Without interest the same goal takes ($10,000 − $2,000) ÷ 36 = $222.23 a month.
Where to keep money for a goal
- For a goal a few years away, an FDIC-insured savings account, money market account or CD keeps the balance steady. Rates change, so the APY you enter is an assumption, not a promise.
- The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category. See the FDIC’s deposit insurance page.
- Interest is usually taxable, and inflation is not included here. Both mean the goal may need to be a little higher.
Questions people ask
How much do I need to save each month to reach a goal?
Without interest, divide what you still need by the number of months: $8,000 more in 36 months is $222.23 a month, rounded up to the cent. Interest lowers that. At 4.5% APY, $2,000 already saved plus $200.91 a month reaches $10,000 in 36 months, because the balance earns about $767 along the way.
What is APY, and why does the calculator ask for it?
APY (annual percentage yield) is the yearly return including compounding. Banks must state it on savings accounts under the federal Truth in Savings Act, so it is the number you will see on your account. The calculator turns it into the monthly rate that compounds to that APY over 12 months.
When are the deposits made?
At the end of each month, starting one month from today. A deposit starts earning interest the month after it goes in. If you deposit at the start of each month instead, you will get there a little sooner.
What if I already have enough saved?
The calculator says so and shows what the balance grows to by your date with no more deposits. If interest alone will carry your savings to the goal in time, it shows that no monthly deposit is needed.
Why does it say my goal is out of reach?
With no monthly deposit and no interest the balance never grows, so the goal can never be met. Add a monthly deposit or an interest rate. The calculator also stops at 100 years; a plan that takes longer than that is shown as out of reach.
Does it include taxes or inflation?
No. Interest on a savings account is usually taxable income, and inflation lowers what the money will buy later. For a goal several years away, such as a down payment, consider aiming a little higher than today’s price.