Savings account interest calculator: what your APY really earns

Two questions, not one

A savings account interest calculator usually answers one question: how much interest will this balance earn? This one answers a second as well, because the first answer on its own can mislead. Interest is credited in money, and money buys less each year that prices rise. An account can pay interest every month for a decade and still leave you able to buy less than you could with the deposits on the day you made them.

So the result comes in two parts. The headline is the interest itself, in the money it is paid in. Under it is the comparison with prices: what the balance would have to be just to keep up with inflation, and how far above or below that line it lands, in today’s money.

Where a below-inflation rate shows up

Take $10,000 left alone for ten years at 1% APY. It grows to $11,046 — $1,046 of interest, and the balance never once goes down. If prices rise 2% a year over the same decade, that $11,046 buys what $9,062 buys today. The account paid interest and still lost about $938 of purchasing power, because 1% after 2% inflation is a real rate of roughly −0.98% a year.

Move the rate to 2% and the balance reaches $12,190, which is worth exactly $10,000 in today’s money: the interest has done nothing but keep pace. At 4% it reaches $14,802, worth $12,143 today. The same 4% against 3% inflation is worth $11,014 — the interest is identical, and only the comparison moved. That is why the inflation figure sits beside the rate rather than in an options menu. The real return calculator works through the exact formula behind the after-inflation rate, and nominal vs real return explains when each kind of rate is the right one to use.

Why it does not just subtract your deposits

With monthly deposits there is an easy mistake to make: take the balance in today’s money and subtract everything you paid in. On the starting numbers above — $10,000 plus $200 a month for ten years at 4% APY, 2% inflation — that gives $36,212 minus $34,000, or about $2,200. But the $200 paid in during year nine was itself worth less than $200 of today’s money by the time it went in, so subtracting it at face value counts it as bigger than it was.

The calculator avoids that by running the same deposits a second time, growing at the inflation rate instead of the account rate. That second balance is what “just keeping up” looks like, with every deposit valued from the month it was made. The gap between the two is the figure shown: about $4,456 on the starting numbers. At 1% APY the same deposits come out about $2,001 behind; the shortcut would have said about $4,246 behind, overstating the loss.

APY, AER and a plain interest rate

In the US, the annual percentage yield is defined by the Truth in Savings rules (Regulation DD); its formula is set out in Appendix A. It turns the interest a deposit earns over a year into a single rate with compounding already counted, assuming the money stays in the account untouched. UK banks quote an AER, which plays the same role. If your bank gives you one of those, it goes straight into the rate box.

If you only have an interest rate and a compounding frequency, change “How the rate is quoted” under more options and the calculator converts it: 4% compounded daily is a 4.08% APY, and 4% compounded monthly is 4.07%. The difference is small at savings rates, and it is the same arithmetic the APR vs APY guide walks through for loans, where it is not small.

What this page does not model

Tax on interest is not modelled; every figure is before tax, and how interest is taxed depends on where you live and the type of account. Most savings rates are variable, so the three rows price the same deposits at a lower and a higher average rate rather than pretending today’s rate will hold for years. Bonus rates that expire, withdrawal limits and fees are not modelled either — if an account has them, run the rate you expect to average after them.

Related tools

For cash with a specific job, the emergency fund calculator sizes the fund and times how long it takes to build. For a fixed term instead of a variable rate, the Treasury bill calculator prices a bill at its discount, and T-bills vs high-yield savings compares the two. For money meant to stay put for many years, the compound growth calculator runs the same engine at an investment return, and the inflation calculator shows what prices do to a fixed sum on its own.

Not advice. This tool applies arithmetic to assumptions you entered. It does not know your circumstances, your tax position or your goals, and it is not a recommendation to buy, sell or hold anything. Past returns do not predict future ones, and no figure here is a forecast.