Index Fund vs Savings Account Calculator
Compare investing in a broad index fund against a high-yield savings account over the same monthly plan — and see the long-run gap.
How it works
Each month: balance = balance · (1 + rate/12) + contribution · run for both the index return and the savings APY
Both paths receive the same starting amount and the same monthly deposits; only the compounding rate differs. A few percentage points of annual return look small early on but diverge dramatically over decades because the higher rate compounds on a larger and larger balance. Savings accounts protect principal and stay liquid, while an index fund carries market risk — the gap is the premium you are paid, on average, for accepting that volatility.
Worked example
$5,000 plus $400 a month for 25 years is $125,000 contributed. At an 8% index return it grows to roughly $400,000; at a 4% savings APY, closer to $220,000 — a difference of about $180,000 driven entirely by the higher compounding rate.
Frequently asked questions
Is an index fund always better than savings?
Over long horizons stocks have beaten savings historically, but not every period — and never with a guarantee. Savings accounts are for money you need soon or cannot risk; index funds are for long-term goals where you can ride out downturns.
What return should I assume for an index fund?
The U.S. stock market has averaged roughly 7–10% a year before inflation over long stretches, but with big swings. Using 7–8% is a common, conservative planning figure; individual decades have been much higher or lower.
Does this account for inflation or taxes?
No — these are nominal, pre-tax balances. Inflation erodes the purchasing power of both, and index-fund gains may face capital-gains tax while savings interest is taxed as ordinary income. Treat the comparison as a growth illustration, not a net-of-everything forecast.
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Educational estimate, not investment or tax advice.