Quick answer: To reach a savings goal, work out how much your current savings will grow on their own, then spread the remaining gap over the deposits. To reach $20,000 in 3 years from $2,000 at 4% a year, compounded monthly, you would save $464.77 a month.
A savings goal is easier to hit when it becomes a monthly number. Whether you are building an emergency fund, saving for a deposit on a home or planning a big trip, this calculator turns a target and a deadline into the amount you need to set aside each month.
It counts the money you have already saved, and any interest that money and your future deposits will earn. If your current savings are enough to reach the goal on their own, it tells you so.
How the monthly amount is found
Your existing savings grow at the monthly interest rate. Whatever is still missing at the deadline has to come from regular deposits, which also earn interest as they build up.
Shortfall = Goal − Saved × (1 + i)n
Monthly deposit = Shortfall × i ÷ ((1 + i)n − 1)
With a 0% rate, the formula simplifies to (goal − saved) ÷ months. The table shows your balance at the end of each year so you can check your progress along the way.
A worked example
Example. To reach $50,000 in 5 years starting with $5,000 in an account paying 4.5% a year, you would save $651.44 a month. You deposit $44,086 in total and interest supplies the remaining $5,914.
Real-world example
A family wants a $20,000 house deposit in 3 years and already has $2,000. At 4% a year the $2,000 grows to $2,255 by itself, leaving $17,745 to come from deposits. That is $464.77 a month, of which about $16,732 is the family's own money and the rest is interest.
Common mistakes to avoid
- Counting on a high interest rate to do the work. On short goals the deposits matter far more than the rate.
- Not allowing for rate changes. Savings rates move, so check the plan now and then and adjust the monthly amount.
- Setting a goal without a date. A deadline turns a wish into a monthly number you can automate.
Frequently asked questions
What interest rate should I use?
Use the rate your savings account or deposit product actually pays, and lower it a little to be safe. If the money sits in an account with no interest, enter 0.
Does inflation change the result?
Yes. If prices rise, the goal may cost more by the time you reach it. One simple approach is to raise your goal by the inflation you expect over the period.
What if I cannot afford the monthly amount?
Try a longer time frame, a lower goal, or a higher starting amount. Changing the time frame usually has the biggest effect.
Are the deposits made at the start or end of each month?
At the end of each month, which is a common convention for savings plans.
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Sources and further reading
- Future value (Wikipedia)
- Investor.gov: U.S. Securities and Exchange Commission investor education
- Compound interest (Wikipedia)
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