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How to use Credit Karma’s savings calculator
Building up your savings can be a good way to help you get closer to your financial goals. You can use a savings account to put aside cash for a rainy day, save for a big expense or even help cover an emergency.
But how quickly you can grow your savings may depend on a few key factors, including the following:
Our savings calculator is for simple interest accounts and can help you estimate how long it might take to meet your savings goal. But keep in mind that this calculator provides an estimate only, based on the information you provide. It doesn’t consider other factors — like the type of savings account, interest rates, fees and bank policies.
Enter the amount you’ll initially put into your savings account. Remember that the more money your savings account starts off with, the quicker you may be able to watch your savings grow.
Monthly savings contribution
Plug in the amount of money you can realistically add to your savings account each month. The more you put aside on a monthly basis, the more you may be able to save over time.
Years to save
Enter the number of years you plan to save up for your goal. If you have a long-term savings goal, it’ll probably take more time to meet than if you have a short-term goal.
Estimated interest rate
Add the interest rate, or annual percentage yield (APY), you expect to get from the savings account. This is determined by the financial institution, so it’ll vary based on factors such as the type of savings account you open, the bank and rate fluctuations based on market conditions.
Lastly, enter the overall amount of money you think you need to save in order to meet your goal. If it’s a short-term goal, such as saving for a purchase or emergency fund, you may need less cash than if you’re saving up for something long term or a bigger goal like a house down payment or college fund.
How to use the savings calculator to plan your savings goals
You can use the savings calculator to help estimate and compare a variety of savings scenarios. Try to play around with different figures such as interest rates, monthly principal contributions and initial deposits until you find a combination that meets your savings goal and budget.
Let’s take a closer look.
What is principal invested?
The principal is the amount of money that you’ll contribute to the savings account directly over a certain period of time. This includes any funds you deposited as your initial deposit, plus the contributions you make over time. It does not include any interest earned on the account.
How does savings account interest work?
When you open a savings account, you’ll either earn simple interest or compound interest. While this calculator is designed for simple interest, it’s important to understand the difference between these two common types of interest that you can earn with a savings account.
- Simple interest — If your account has a simple interest rate, you’ll earn interest only on the cash you deposit.
- Compound interest — With a savings account that pays out compound interest, you’ll earn interest on your principal investment, plus interest on any interest that you’ve already earned.
For example, if you have an account that compounds yearly at 0.4% and you invest $1,000, you’ll earn $4 in interest after the first year, totaling $1,004 in savings. But after the second year, you’d have $1,008.02 since you’re earning interest on the total in the account.
This compound interest can add up over time because you’ll continue to earn interest on interest with every compounding period. So in 10 years’ time, even if you don’t add any more funds to the account, you’ll earn $40.73 in total interest thanks to compounding.
How to compare savings accounts
There are several types of savings accounts you may want to consider. To find the right savings account for you, it’s a good idea to shop around at different banks, credit unions and online banks.
Types of savings accounts
- Traditional savings accounts — Available at banks and credit unions, these are simple savings accounts that generally have low minimum deposit requirements. They generally offer lower interest rates when compared to other savings options.
- High-yield savings accounts — High-yield savings accounts, whose interest rates tend to be greater, can help you save faster when compared to a traditional savings account.
- Money market accounts — Also known as a money market deposit or money market savings account, these can be found at banks and credit unions. Withdrawals and payments by check, debit card, electronic transfer or drafts are capped at six times per month. But accessing your funds by ATM, in person, by mail or a telephone check won’t count against this limit.
- Certificate of deposit — Generally considered a safe savings option, a certificate of deposit, or CD, is an account that holds a fixed amount of money for a specific period of time, such as six months or five years. At the end of the term, you cash in your CD and get back your original investment plus interest.
What to consider when opening a savings account
When researching savings accounts, be sure to compare the following key features:
- Interest rates — Interest rates typically vary from bank to bank and among account types. Some banks may give you the opportunity to increase your interest rate depending on your account balance. Rates may fluctuate based on market conditions.
- Fees — Review any fees that may come with the account, such as monthly maintenance or service fees and withdrawal limit fees. While some banks have no fees at all, others may have ways you can avoid them altogether with introductory offers or by meeting certain requirements like maintaining balance minimums or making transfers from a linked account.
- Ease of accessing cash — Depending on the type of savings account, you may be able to electronically transfer money to another account, take out cash at an ATM or make an in-person withdrawal at a local branch. Compare accessibility options different banks may have and consider whether you prefer an online financial institution or a more traditional bank with brick-and-mortar locations.
- Convenience features and other perks — Some savings accounts may come with extras such as tools to help you meet your savings goals, financial education resources and automatic transfers. Carefully consider what additional benefits a savings account may offer before deciding where to stash your cash.
With so many options when it comes to savings accounts, you may decide to open more than one account depending on your short-term and long-term goals and budget.