Most savings calculators tell you what a pot becomes. This one works the other way: give it the number you need and the date you need it by, and it tells you what to put in each month. The interest the deposits earn is included, so the answer is lower than simply dividing the target by the number of months.
Someone has a specific number they need by a specific date — a deposit, a car, a fund — and wants to know the monthly amount that gets them there, rather than what an existing pot will grow into.
The obvious way to work out a monthly saving is to divide the goal by the number of months. That answer is always too high, because it ignores the interest the deposits earn while they sit there. The earlier a deposit goes in, the more periods of interest it collects before you need the money.
The effect is substantial over long horizons. To reach $100,000 in ten years with $5,000 already saved at 5%, the required deposit is $590.96 a month. Dividing the goal by 120 months gives $833.33. The difference — more than $240 a month — is entirely interest that the deposits earn for you.
This also means the answer is sensitive to the horizon in a way that is easy to underestimate. Stretching the same goal from ten years to fifteen does not reduce the deposit by a third; it reduces it by more, because every deposit also gets five extra years of its own compounding.
Money already saved has the longest possible time to compound, so it contributes disproportionately. In the $100,000 example, the $5,000 you start with grows to $8,235.05 on its own — it covers about eight percent of the goal without a single contribution.
The effect scales with time. Aiming at $1,000,000 in thirty years with $25,000 already saved at 7%, the starting amount alone grows to $202,912.44. That is more than a fifth of the target, before you have deposited anything. The remaining $797,087.56 is covered by $653.37 a month.
The practical implication is that the order of operations matters: moving money into the account early is worth more than increasing the deposit later, and a lump sum you are deciding what to do with is worth more here than the same amount dripped in over a year.
It assumes the rate holds for the whole term. Over ten years that is a reasonable assumption for a fixed-rate savings account and a poor one for anything invested in markets, where a single bad year near the end can leave you short of a goal you were on track to hit. Money with a fixed deadline belongs somewhere the balance does not fall.
It also ignores inflation, tax and fees. A $100,000 goal in ten years is not $100,000 in today's money: at three percent inflation it buys what about $74,400 buys now. If the goal is a house deposit, the target itself is moving while you save toward it.
Finally, it assumes deposits are made at the end of each period and never missed. A missed month is not recovered automatically — you would need to raise later deposits to compensate, and there is less time for them to earn.
PMT = ( target − P(1 + i)^n ) ÷ [ ((1 + i)^n − 1) ÷ i ], where i = r ÷ n and n = n × years
This is the compound-interest formula rearranged to solve for the deposit instead of the balance. The numerator is the gap left after your existing savings have grown; the denominator converts that gap into a level deposit, accounting for the interest each deposit earns.
You need $100,000 in ten years, have $5,000 saved, and can get 5% compounded monthly. The required deposit is $590.96 a month. Over 120 months that is about $70,915 paid in; your existing $5,000 grows to $8,235.05, and the deposits earn roughly $20,850 of interest between them. Dividing the goal by 120 would have told you $833.33 a month — a third more than you actually need.
A long horizon changes the arithmetic completely. Aiming at $1,000,000 in thirty years from $25,000 at 7% monthly needs $653.37 a month — less than the ten-year example above, for ten times the goal. The starting $25,000 grows to $202,912.44 by itself, and the deposits total $235,211.76. The rest, $561,875.81, is interest. Time is doing most of the work.
Starting from nothing, $50,000 in five years at 4% monthly needs $754.16 a month. You pay in about $45,250 and earn roughly $4,750 of interest. Over a short term the interest is a small part of the total, so the deposit is close to the naive goal-divided-by-months figure of $833.33 — the closer the deadline, the less compounding can help you.
| Time available | Deposit each month | Total paid in |
|---|---|---|
| 1 yr | $7,716.04 | $92,592.53 |
| 2 yr | $3,751.12 | $90,026.77 |
| 3 yr | $2,430.57 | $87,500.47 |
| 5 yr | $1,376.10 | $82,566.03 |
| 7 yr | $926.05 | $77,788.59 |
| 10 yr | $590.96 | $70,914.69 |
| 15 yr | $334.59 | $60,225.71 |
| 20 yr | $210.29 | $50,469.91 |
| 25 yr | $138.69 | $41,608.16 |
| 30 yr | $93.31 | $33,593.00 |
Take the amount you still need after your existing savings have grown, and divide it by the future value of an annuity factor for your rate and term: ((1 + i)^n − 1) ÷ i, where i is the rate per period and n is the number of periods. Dividing the goal by the number of months instead gives an answer that is always too high, because it ignores the interest the deposits earn.
Yes, and more than most people expect. Reaching $100,000 in ten years from $5,000 at 5% needs $590.96 a month. Stretching the same goal to fifteen years lowers it substantially, because every deposit also earns five extra years of interest. The relationship is not linear — the longer the horizon, the more each month of delay costs you.
Use a savings rate if the goal has a fixed deadline. An investment return is an average, and a bad year close to the deadline can leave you short with no time to recover. Money you need on a specific date should not depend on market performance to be there.
Usually because the bank's figure ignores the interest your deposits earn, or assumes a lower rate. It can also be the opposite: if the bank compounds monthly but credits interest annually, the real growth is slightly lower than this calculator assumes, and the true deposit is slightly higher.