Savings Calculator

Checking vs. Savings Accounts

A savings account is a deposit account held at a bank or credit union that pays interest on the deposited funds. It offers a secure place to store cash while earning a modest return. Savings accounts differ from checking (or current) accounts in key ways:

• Checking Accounts are highly liquid and designed for everyday transactions (withdrawals, deposits, debit card payments) but generally pay little to no interest.
• Savings Accounts are designed for holding money longer-term and pay higher interest rates, though they may have restrictions on the number of monthly withdrawals.

Having both accounts at the same time is a common strategy—keeping immediately needed cash in checking and excess funds in savings to earn interest in the meantime.

Money Market Accounts & CDs

There are alternative low-risk options with higher returns than traditional savings accounts:

• Money Market Accounts (MMA): These accounts typically earn higher interest rates than traditional savings accounts because deposits are invested in short-term debt securities. They may also offer limited check-writing or debit card access.
• Certificates of Deposit (CD): A CD locks your money for a fixed term (e.g., 6 months, 1 year, or 5 years) in exchange for a higher, fixed interest rate. Early withdrawals usually incur a penalty.

General Savings Guidelines

When deciding how much to contribute towards savings, there are several general guidelines that can help:

• Emergency Fund Rule: Have enough in savings to cover at least three to six months' worth of living expenses. This acts as a safety net for sudden unemployment or emergency expenses.
• 10% Rule: Set aside at least 10% of each paycheck to place directly into savings.
• 50-30-20 Rule: Allocate 50% of your net income to necessities (housing, bills, necessities), 30% to wants and lifestyle choices, and 20% to savings and debt repayment.

Managing Inflation and Opportunity Cost

While savings accounts provide safety and liquidity, keeping too much money in cash can lead to opportunity cost. Inflation erodes the purchasing power of money over time. If your savings account's interest rate is lower than the rate of inflation, your money is effectively losing value. For long-term goals like retirement, investing in stocks, bonds, mutual funds, or real estate can offer significantly higher returns and preserve purchasing power over the long run.