A savings calculator answers the practical question: if I deposit X each month at Y% interest, what will I have at the end of N years? This calculator does that with the compound interest formula every Australian bank uses, plus a clear after-tax view.
How a savings account compounds
Banks calculate interest daily on your savings balance and credit it monthly (a few accounts pay quarterly). The formula is:
Final balance = P × (1 + r/12)^(12n) + PMT × [((1 + r/12)^(12n) − 1) / (r/12)]
Where P is your starting balance, r is the annual interest rate, n is the number of years, and PMT is your monthly deposit.
What matters in practice: every dollar deposited starts earning interest immediately. The interest joins the balance the following month, and that combined amount earns interest the month after. Over 5+ years, the interest on previous interest becomes a meaningful part of the total return.
Worked examples
$10,000 starting, no deposits, 5% interest, 5 years: End balance: ~$12,800. Interest earned: ~$2,800. The compounding effect is small here — most of it is just rate × principal.
$0 starting, $500/month, 5% interest, 5 years: End balance: ~$34,000. Total deposited: $30,000. Interest earned: ~$4,000.
$10,000 starting, $500/month, 5% interest, 5 years: End balance: ~$46,800. Total deposited: $40,000. Interest earned: ~$6,800.
$10,000 starting, $500/month, 5% interest, 20 years: End balance: ~$232,000. Total deposited: $130,000. Interest earned: ~$102,000.
The 20-year scenario is where compounding really shows up. Roughly $100,000 of the final balance is interest — more than the original deposits in the second half of the term.
Bonus rate vs base rate: the math people miss
Most "high interest" Australian savings accounts have a two-tier structure:
- Bonus rate (headline): paid in months you meet all conditions
- Base rate (fallback): paid in months you miss any condition
Common bonus conditions:
- Deposit at least $X (typically $200–$1,000) per month
- Make no withdrawals from the savings account
- Maintain a balance above a threshold
- Have a linked transaction account with X transactions per month
Miss any of these — even once — and the entire month's interest drops to the base rate, which can be as low as 0%.
If your effective bonus rate is, say, 5.5% but you only qualify for it 9 months out of 12 (because you withdrew during emergencies), your blended rate is closer to:
(9/12 × 5.5%) + (3/12 × 0.5%) = 4.25%
That's still good, but it's the figure to plan around. A no-conditions account at 4.5% might be the better deal if you can't reliably meet the bonus conditions.
After-tax return: the real number
Interest is fully taxable in Australia at your marginal rate plus 2% Medicare levy. To get the actual return on your money, multiply the rate by (1 − marginal rate − 0.02).
| Marginal rate | Bonus rate 5.5% | After-tax |
|---|---|---|
| 16% | 5.5% | 4.51% |
| 30% | 5.5% | 3.74% |
| 37% | 5.5% | 3.36% |
| 45% | 5.5% | 2.92% |
For a top-bracket earner, a 5.5% savings account is effectively delivering 2.9% after tax — barely above the long-run inflation target. Cash savings preserve purchasing power for that earner but don't build real wealth.
Savings vs offset: don't lose to your own loan
If you have an Australian home loan (or any debt at higher interest than your savings rate), money in savings is mathematically inferior to money in offset.
A 6.0% offset benefit equals a 6.0% tax-free return — the offset doesn't pay interest, it removes interest charged. There's nothing to declare to the ATO. Compared to a 5.5% savings account at the 30% marginal rate (after-tax 3.74%), the offset is delivering roughly 60% more return.
The only reason to keep significant savings outside offset:
- You don't have a home loan
- Your offset is already at full benefit (i.e., balance equals loan, no further saving available)
- You explicitly want money outside the loan account for psychological / accounting reasons
For most Australian households with a mortgage, fill offset before opening any savings account. Use savings for amounts beyond what offset can hold or for kids/non-mortgage holders.
Term deposit vs savings: when to lock it up
A term deposit pays a fixed rate for a fixed period (3, 6, 12, 24+ months). The trade-off:
- Pro: rate is locked, no bonus conditions, predictable
- Con: funds are inaccessible (or accessible with break costs / interest forfeit)
Term deposit rates are usually 0.25–0.50% below the best savings bonus rate but applied to 100% of the term. If you'd otherwise miss bonus conditions some months, a term deposit can produce a higher actual return.
Use term deposits for money you definitely won't need access to (a tax bill due in 6 months, a deposit being saved for a known purchase). Use savings for everything else.
How to set savings up
- Pay yourself first. Set up an automatic transfer from your transaction account on payday. Treat it like a bill.
- Bucket the goals. Separate accounts for emergency, holiday, deposit, etc. Most banks allow multiple linked savings accounts on the same bonus rate.
- Track conditions. Calendar reminders for the monthly minimum deposit and "no withdrawals" rule. Missing the bonus by a single transaction usually wipes out 80% of the month's interest.
- Review rates annually. Banks often quietly drop bonus rates 6–12 months after sign-up. The market leader changes; what was top-3 last year is mid-pack today.
- Use offset first if you have a mortgage. Most savings accounts can't beat offset.
For long-term goal projections, see the Compound Interest Calculator. For locked-rate scenarios, the Term Deposit Calculator. For setting a target balance and working backwards to required monthly deposits, the Savings Goal — Deposit Calculator.
Frequently asked questions
What savings rate can I realistically get in Australia?
Headline savings account rates in 2026 typically run 4.5–5.5% on bonus-rate accounts (with conditions: minimum deposits, no withdrawals). Standard rates without conditions are usually 0.5–1.5% lower. Term deposits sit roughly 0.25–0.75% below the best bonus savings rate but with no conditions. Always compare the **base rate** when conditions are missed — a 5.50% bonus account that drops to 0.50% in any month you withdraw is misleading if you actually need flexibility.
How much tax do I pay on savings interest?
Interest is taxed at your marginal rate plus the 2% Medicare levy. For most working-age Australians that's 32% (the 30% marginal bracket plus Medicare). On $1,000 of interest, you keep ~$680 after tax. To compare savings against other investments, always use the after-tax rate. A 5% savings account at the 32% effective rate is a 3.4% after-tax return — barely keeping pace with inflation.
Should I keep cash in savings or in offset?
If you have a mortgage, offset wins almost always. The benefit of $10,000 in offset on a 6% home loan is the same as a tax-free 6% savings account — equivalent to a ~8.6% pre-tax savings rate at the 30% marginal bracket. Even the best Australian savings accounts (~5.5% headline) lose comfortably to offset. Keep emergency funds in offset; only use a separate savings account if you don't have a home loan or your offset is full.
What's the difference between bonus and base interest rates?
Bonus rate is the headline number you see in advertising. It's only paid in months where you meet specific conditions — typically minimum deposits ($200–$1,000), no withdrawals, or a minimum balance. The base rate is what you get if you miss any condition. Some accounts have a $0 base rate. Real-world question: how often will you actually meet the conditions? If the answer is 'most months', use the bonus rate. If it's 'occasionally', plan around the base rate or pick a no-conditions account.
How do regular deposits accelerate savings?
Massively. A $5,000 starting balance growing at 5% for 10 years reaches ~$8,200 — roughly $3,200 of interest. The same starting balance with $300/month added deposits reaches ~$54,000 — total deposits of $41,000 plus ~$8,000 of interest. Regular contributions are the dominant lever for short-to-medium horizons. Compound interest only really takes over after 15+ years of consistent contributions.
Should I split savings across multiple accounts?
Mostly cosmetic, but useful for behaviour. Bucket accounts (one for emergency fund, one for holiday, one for a deposit) make tracking goals easier and prevent the 'holiday money' from being treated as 'general savings' that drifts into other spending. Some banks let you create multiple linked savings accounts that all earn the bonus rate together — useful for goal tracking without splitting across institutions.
What about high-interest cash ETFs?
Cash ETFs like AAA hold deposits at major banks and pass through the wholesale rate. Returns are typically ~0.10–0.30% above retail savings rates, with brokerage fees on entry/exit. For balances above ~$50,000 they can edge out savings accounts after fees. For smaller balances, the brokerage erases the rate advantage. Check whether your broker offers free brokerage on cash ETFs (some do).
How does inflation affect savings?
Inflation erodes the purchasing power of savings. The RBA targets 2–3% inflation, so a 5% nominal savings rate is closer to a 2–3% real rate (and even less after tax). Cash savings preserve nominal value but rarely build real wealth — they're a parking spot for short-term goals and emergency funds, not a long-term wealth strategy. For long horizons (10+ years), super and growth assets typically outperform cash by a wide margin.
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Last updated: 30 April 2026