How to use the tiered interest savings calculator
- Enter the starting balance, the deposit each month and the number of months.
- Choose how tiers work: each slice of the balance earns its own tier rate, or the whole balance earns the rate of the tier it falls in.
- List the tiers from the lowest balance upward, each with the balance it runs up to and its yearly rate. Leave the last upper limit blank.
- Read the ending balance, the interest earned, the blended rate and the interest each tier produced.
Formula
each slice: monthly interest = sum over tiers of (balance inside the tier) x tier rate / 12
whole balance: monthly interest = balance x rate of the tier it reaches / 12
new balance = balance + monthly interest + monthly deposit
Interest is credited monthly and compounds because it joins the balance. The blended rate in month 1 is that month's interest times 12 divided by the starting balance.
Three tiers and a monthly deposit
Start with $5,000 and add $250 each month for 24 months. The tiers are 0.5% up to $2,500, 2.5% up to $10,000 and 4% above that, with each slice earning its own rate. In month 1 the first $2,500 earns $1.04 and the next $2,500 earns $5.21, so interest is $6.25, a blended rate of 1.5%.
After 24 months the balance is $11,302.77 and the interest earned is $302.77: $25.00 from the first tier, $269.38 from the second and $8.40 from the third. If the whole balance instead earned the rate of the tier it reaches, the same plan ends at $11,468.64, with $468.64 of interest.
Slices or whole balance
Banks describe tiers in two ways. In the first, only the part of your money inside a tier earns that tier's rate, like income tax brackets. In the second, one rate applies to your entire balance depending on which band it lands in, so crossing a threshold lifts the rate on every dollar. Your account terms say which one applies, and the difference can be large near a threshold.
Keeping the model honest
Rates change, and some accounts require a minimum balance, a number of deposits or a debit card use to earn the top rate. This page uses the rates you enter for every month. Compare with the Savings Calculator for a single-rate account and the APY and APR Calculator to convert between yearly rate styles.
Assumptions and limits
- Rates are yearly rates credited as one twelfth each month on the balance at the start of the month.
- The deposit is added at the end of each month, after interest.
- The last tier covers every balance above the previous limit. A finite limit typed in the last row is treated as no limit.
- Taxes, fees and rate changes are not modeled.
Frequently asked questions
Is the rate I enter an APY or an APR?
Enter the yearly rate that the bank divides by 12 each month. Because interest compounds monthly here, the yield over a year will be slightly higher than the rate you typed.
Why is the blended rate lower than my top tier?
The blended rate averages the tier rates weighted by how much money sits in each tier. With most of the balance in lower tiers, the average is lower than the top rate.
Can I set a deposit of zero?
Yes. Enter 0 to see how a lump sum grows by itself. The page also accepts a starting balance of 0 if you make monthly deposits, in which case the month 1 blended rate is not available.
How many tiers can I use?
Up to eight tiers. Each upper limit must be higher than the one before it, and the last row covers everything above its predecessor.