$500 a month for 36 months at 4% ends at $19,110.00 before tax, or $18,865.80 after tax at 22%
Put $500 into a savings account on the same day every month for three years and you will have deposited $18,000.00. At a 4% annual rate, simple interest adds $1,110.00, so the balance before tax is $19,110.00. Bank interest is ordinary income: normally nothing is withheld, your bank reports it on Form 1099-INT, and you pay at your own marginal rate. At 22%, a common federal bracket, the tax is $244.20, after-tax interest is $865.80 and the ending balance is $18,865.80. That is an after-tax return of 4.810% on what you deposited, or 1.603% a year, well under the 4% on the sign.
Nothing went wrong; it is how a monthly plan works, and the sections below show why, along with simple vs compound interest, the tax at different rates, and how to work backward from a goal.
How the balance is calculated
- Add up the deposits. Monthly deposit × number of months: 500 × 36 = $18,000.00.
- Work out gross interest. If each deposit goes in at the start of its month, deposit 1 earns interest for 36 months, deposit 2 for 35 and deposit 36 for one month. Simple interest = deposit × annual rate ÷ 12 × (1 + 2 + … + 36) = 500 × 0.04 ÷ 12 × 666 = $1,110.00. Fractions of a cent are dropped.
- Apply tax. Choose "Before tax" to see the gross figure, or "After my tax rate" and enter your marginal rate. At 22%: 1,110.00 × 22% = $244.20.
- Subtract and add. After-tax interest 1,110.00 − 244.20 = $865.80; balance 18,000.00 + 865.80 = $18,865.80.
- Read the return. After-tax interest ÷ deposits = 4.810%. For terms other than 12 months the result row also shows the per-year figure (× 12 ÷ months), 1.603% here.
Why interest on a monthly plan is about half of deposits × rate
A lump sum earns interest on the whole amount for the whole term. A monthly plan does not: only the first deposit is invested for the full 36 months, the last one for a single month. The average deposit is invested for (36 + 1) ÷ 2 = 18.5 months, so $18,000 at 4% earns 18,000 × 0.04 × 18.5 ÷ 12 = $1,110.00. The same $18,000 deposited on day one would earn 18,000 × 0.04 × 3 = $2,160.00 ($1,684.80 after 22% tax). The monthly plan earns 51.4% of that, and the longer the term, the closer the share gets to exactly one half. The deposit-by-deposit table in the calculator makes this visible: deposit 1 earns $60.00, deposit 2 $58.33, deposit 3 $56.66, and deposit 36 only $1.66.
| $500 a month · 4% simple · 22% tax | Deposits | Gross interest | Tax | After-tax interest | Balance | After-tax return per year |
|---|---|---|---|---|---|---|
| 6 months | 3,000.00 | 35.00 | 7.70 | 27.30 | 3,027.30 | 1.820% |
| 12 months | 6,000.00 | 130.00 | 28.60 | 101.40 | 6,101.40 | 1.690% |
| 24 months | 12,000.00 | 500.00 | 110.00 | 390.00 | 12,390.00 | 1.625% |
| 36 months | 18,000.00 | 1,110.00 | 244.20 | 865.80 | 18,865.80 | 1.603% |
| 48 months | 24,000.00 | 1,960.00 | 431.20 | 1,528.80 | 25,528.80 | 1.593% |
| 60 months | 30,000.00 | 3,050.00 | 671.00 | 2,379.00 | 32,379.00 | 1.586% |
The practical rule: money you already have earns more as a lump sum in a CD or high-yield savings account, and money that arrives monthly goes in monthly. Do not compare a monthly plan's return to a CD's APY as if they measured the same thing; at 4%, the 36-month plan above earns what a lump sum at about 2.06% a year would; that is the plan's before-tax return per year (2.056%).
Simple vs monthly compound, and APY vs APR
With simple interest each deposit earns on its own amount only. With monthly compounding, interest already credited earns interest the next month; the calculator grows deposit k by (1 + annual rate ÷ 12) raised to the number of months it stays invested. Most U.S. savings accounts and CDs compound daily or monthly and credit interest monthly, so "Monthly compound" is usually the closer match; "Simple" fits a plan that pays interest once at maturity. The difference is small at everyday rates and grows with the term.
| $500 a month · 4% · 22% tax | Simple gross interest | Compound gross interest | Difference | Simple balance | Compound balance |
|---|---|---|---|---|---|
| 12 months | 130.00 | 131.60 | 1.60 | 6,101.40 | 6,102.65 |
| 36 months | 1,110.00 | 1,154.41 | 44.41 | 18,865.80 | 18,900.44 |
| 60 months | 3,050.00 | 3,259.98 | 209.98 | 32,379.00 | 32,542.79 |
On the rate itself: the calculator takes the annual rate you enter and divides it by 12 for each month. Banks usually advertise an APY, which already includes compounding over a year; a 4% rate compounded monthly works out to an APY of about 4.07%, and daily compounding adds a little more. Entering an APY under "Monthly compound" counts compounding twice and overstates the result a little; entering it under "Simple" ignores compounding and understates it a little. Either way the gap is a small fraction of the interest, so treat the output as a close estimate, and use the result row that shows the other method and the difference when a product's terms are unclear.
Taxes on the interest
Interest from a bank or credit union is ordinary income. The institution normally withholds nothing (24% backup withholding applies only if you have not given it your taxpayer identification number); when the year's interest reaches $10 it sends you and the IRS a Form 1099-INT, and the interest is taxable in the year it is credited and available to you (IRS Topic 403). You pay at your federal marginal rate, and many states tax it as well. The calculator therefore has no built-in rate. Use "Before tax" to compare offers on a gross basis, or "After my tax rate" with your combined federal and state rate; 22% is the preset only because it is a common federal bracket, not a rule.
| $500 a month · 4% · 36 months simple (gross interest $1,110.00) | Tax | After-tax interest | Balance | After-tax return per year |
|---|---|---|---|---|
| Before tax | 0.00 | 1,110.00 | 19,110.00 | 2.056% |
| 12% | 133.20 | 976.80 | 18,976.80 | 1.809% |
| 22% | 244.20 | 865.80 | 18,865.80 | 1.603% |
| 24% | 266.40 | 843.60 | 18,843.60 | 1.562% |
| 27% (example: 22% federal + 5% state) | 299.70 | 810.30 | 18,810.30 | 1.501% |
| 32% | 355.20 | 754.80 | 18,754.80 | 1.398% |
The calculator applies one rate once to the total interest. On a multi-year plan the bank actually reports each year's interest separately, so the tax lands on more than one return; the total is the same if your rate does not change.
Working backward from a goal
Choose "Target amount", enter the balance you want at the end, and the calculator finds the smallest monthly deposit, to the cent, whose after-tax balance is at least that amount under the same term, rate and tax setting. It searches the actual calculation rather than dividing, because flooring interest and tax to the cent can leave a plain division a few cents short.
| Target (after tax) | Term · rate · tax | Monthly deposit needed | Actual balance |
|---|---|---|---|
| $10,000 | 12 months · 4% simple · 22% | 819.49 | 10,000.07 |
| $10,000 | 12 months · 4% simple · before tax | 815.67 | 10,000.11 |
| $10,000 | 24 months · 4% simple · 22% | 403.56 | 10,000.22 |
| $25,000 | 36 months · 4% simple · 22% | 662.58 | 25,000.20 |
| $25,000 | 36 months · 4% simple · before tax | 654.11 | 25,000.08 |
| $50,000 | 60 months · 4.5% simple · 22% | 765.08 | 50,000.09 |
Over short terms the deposit does almost all the work: $10,000 in a year needs $819.49 a month, and interest contributes only $166.19 after tax. Over 60 months the $50,000 goal is reached with $45,904.80 of deposits and $4,095.29 of after-tax interest.
Reading the deposit-by-deposit table
"Months invested" is how long that deposit stays in the account before the end of the term, and "Interest on this deposit" is the gross interest it earns. At $500 and 4%, deposit 1 is invested for 36 months and earns $60.00, deposit 2 for 35 months and $58.33, deposit 3 for 34 months and $56.66, down to deposit 36 with one month and $1.66; the cumulative column reaches $1,110.00. Each row is floored to the cent, while the cumulative column floors the running total, so the rows may add up to slightly less than the cumulative column (after three deposits the rows show 60.00 + 58.33 + 56.66 = 174.99 while the cumulative column shows 175.00). Tax is not taken row by row; the calculator applies it once to the total. If your deposits vary from month to month, enter the average and treat the result as approximate.
Common mistakes
- Estimating interest as deposits × rate × years. 18,000 × 4% × 3 = $2,160 is the lump-sum figure. A monthly plan earns $1,110.00, because the average dollar is invested for about half the term.
- Entering a monthly rate. Enter the annual rate as quoted, 4 for 4%; the calculator divides by 12.
- Entering the term in years. The term is a whole number of months: three years is 36, two and a half years is 30.
- Picking "Simple" for an account that compounds. At 36 months that understates gross interest by $44.41 and the after-tax balance by $34.64. Pick "Monthly compound" for savings accounts and CDs that compound; pick "Simple" only for a plan that pays interest at maturity.
- Comparing offers after tax at different rates. Compare products on the same tax setting; use "Before tax" for the comparison and your own rate for the final figure.
- Forgetting state tax. The preset 22% is a federal example. If your state taxes interest, add its rate before entering yours.
- Assuming the rate holds. High-yield savings rates are variable and can change at any time; CD rates are fixed for the term. For a savings account, run a lower rate as well to see the downside.
Limits and notes
- The model assumes the same deposit on the same day each month, interest for whole months on each deposit and all interest paid at the end of the term. Banks accrue interest daily on the actual balance and usually credit it monthly, so their projection can differ by a few dollars.
- Variable rates, rate tiers, minimum balances, promotional or bonus rates, early-withdrawal penalties on CDs and skipped or extra deposits are not modeled.
- Tax is one flat rate applied once to the total interest. It does not model yearly reporting on multi-year plans, state-specific rules, or the effect of additional interest income on credits and phase-outs. Confirm your own bracket with a tax professional or your prior return.
- Deposits at an FDIC-insured bank are insured up to $250,000 per depositor, per insured bank, per account ownership category; credit union shares are insured by the NCUA to the same limit. Balances above the limit at one institution are not covered.
- The calculator accepts a monthly deposit up to $100,000,000, a target up to $10,000,000,000, a term up to 600 months and a rate up to 100%. Inputs are processed in your browser and are not sent to a server.
As of 2026-10-06 The figures and statements in this article were checked on 2026-10-06 against the sources below; each linked page returned normally on that date. Tax brackets and state rules change, so confirm your own rate before relying on an after-tax figure.
Sources
- 01IRS — Topic No. 403, Interest ReceivedInterest credited to an account you can withdraw from is taxable income in the year it becomes available; reported to you on Form 1099-INT. Checked 2026-10-06
- 02IRS — About Form 1099-INT, Interest IncomeThe information return banks and credit unions file for interest paid; no tax is withheld on it in the normal case. Checked 2026-10-06
- 03FDIC — Understanding Deposit InsuranceStandard coverage of $250,000 per depositor, per FDIC-insured bank, per ownership category. Checked 2026-10-06
- 04NCUA — Share Insurance CoverageFederal share insurance for credit union members, $250,000 per member per insured credit union per ownership category. Checked 2026-10-06
- 05Federal Reserve — Regulation DD (Truth in Savings) Compliance GuideHow deposit accounts must disclose the annual percentage yield (APY), the basis for the APY-vs-rate note above. Checked 2026-10-06
Frequently asked questions
What does $500 a month for 36 months at 4% grow to?
Deposits total $18,000.00 and gross simple interest is $1,110.00: each deposit earns 4% ÷ 12 per month for the months it stays invested, so 500 × 0.04 ÷ 12 × (36 × 37 ÷ 2) = $1,110.00. Before tax the balance is $19,110.00. At a 22% marginal rate the tax is $244.20, after-tax interest is $865.80 and the ending balance is $18,865.80, an after-tax return of 4.810% on deposits (1.603% a year).
Why is the interest only about half of deposits × rate?
Because the money arrives gradually. Over 36 months the first $500 earns interest for 36 months and the last $500 for one month, so the average deposit is invested for (36 + 1) ÷ 2 = 18.5 months. $18,000 invested for 18.5 months at 4% is 18,000 × 0.04 × 18.5 ÷ 12 = $1,110.00, while $18,000 held as a lump sum for the full 36 months would earn $2,160.00. The monthly plan earns 51% of the lump-sum figure, and the longer the term, the closer that share gets to one half.
How much tax do I owe on the interest?
Interest from banks and credit unions is ordinary income. The bank normally withholds nothing (24% backup withholding applies only if you have not given it your taxpayer ID) and reports $10 or more to you and the IRS on Form 1099-INT, and you pay at your federal marginal rate plus state tax where it applies. On $1,110.00 of interest the tax is $133.20 at 12%, $244.20 at 22%, $266.40 at 24% and $355.20 at 32%; at 22% federal plus 5% state (27%) it is $299.70. Enter your combined rate under 'After my tax rate'; 22% is only an example bracket.
Simple or monthly compound: which should I pick?
Most U.S. savings accounts and CDs compound daily or monthly, so 'Monthly compound' is usually the closer match; 'Simple' fits a plan that pays interest once at maturity. The gap is small at common rates: at $500 a month and 4%, gross interest is $130.00 simple vs $131.60 compound over 12 months, $1,110.00 vs $1,154.41 over 36 months and $3,050.00 vs $3,259.98 over 60 months. After 22% tax the 36-month balances are $18,865.80 and $18,900.44, a difference of $34.64.
Is the rate I enter an APY or an APR?
Enter the annual rate your bank quotes. The calculator divides it by 12 and applies that monthly rate to each deposit for the months it is invested. With 'Simple' the quote is treated as a plain annual rate; with 'Monthly compound' a 4% entry behaves like a 4.07% APY. Banks that quote an APY have already folded compounding into the number, and daily compounding earns slightly more than monthly, so treat the result as a close estimate rather than a statement.
How much do I need to save each month to reach $10,000 in a year?
At 4% simple interest and a 22% tax rate, $819.49 a month ends at $10,000.07 (deposits of $9,833.88 plus $166.19 after-tax interest). Before tax it takes $815.67 a month ($10,000.11). Over 24 months the same goal needs $403.56 a month, and $25,000 in 36 months needs $662.58 a month ($25,000.20). Target mode searches, to the cent, for the smallest deposit whose after-tax balance is at least the goal.
Why does my bank's projection differ slightly?
This calculator assumes a deposit on the same day each month, interest on each deposit for a whole number of months, and tax taken once from the total interest. Banks compute interest daily on actual balances, often compound daily and credit monthly, and APY quotes already include compounding, so projections can differ by a few dollars. Rate changes on variable-rate savings accounts, early-withdrawal penalties on CDs and promotional rates are not modeled.
Is the money insured, and what does the calculator leave out?
Deposits at FDIC-insured banks are covered up to $250,000 per depositor, per insured bank, per ownership category, and NCUA share insurance gives credit union members the same limit. The calculator does not model variable rates, early withdrawals, daily compounding, state-specific tax rules or the effect of extra interest income on credits and phase-outs. Inputs stay in your browser and are not sent anywhere.