Whether you're saving for a house deposit, a holiday, retirement, or an emergency fund, the same formula tells you exactly how much to set aside each month to hit your target.
The Core Formula: Future Value of Regular Savings
When you save the same amount each month, this is called an annuity. The future value formula is:
FV = PMT × [((1 + r)ⁿ − 1) / r]
Where:
- FV = target amount (future value)
- PMT = monthly payment (what you're solving for)
- r = monthly interest rate (annual rate ÷ 12)
- n = total number of months
Rearranging to find the monthly payment:
PMT = FV × r / ((1 + r)ⁿ − 1)
Worked Example: House Deposit
Goal: Save £30,000 in 4 years (48 months) Interest rate: 4.5% AER savings account
Monthly rate: 4.5% ÷ 12 = 0.375% = 0.00375
PMT = 30,000 × 0.00375 / ((1.00375)⁴⁸ − 1)
= 30,000 × 0.00375 / (1.1964 − 1)
= 112.5 / 0.1964
= £573/month
You'd need to save £573 per month for 4 years to reach £30,000 at 4.5% interest.
No Interest (Simple Monthly Saving)
If you're not earning interest (or want a simpler calculation):
Monthly saving = Target ÷ Number of months
Example: Save £5,000 in 18 months:
Monthly saving = £5,000 ÷ 18 = £278/month
Worked Example: Emergency Fund
Goal: 6 months of expenses = £2,500/month × 6 = £15,000 Timeline: 2 years (24 months) Interest rate: 3.5% (instant access savings)
Monthly rate = 3.5% ÷ 12 = 0.2917% = 0.002917
PMT = 15,000 × 0.002917 / ((1.002917)²⁴ − 1)
= 43.75 / (1.0726 − 1)
= 43.75 / 0.0726
= £603/month
Or roughly £600/month — about 24% of a £2,500/month income.
Monthly Saving Needed by Goal and Timeline
| Goal | Timeline | 0% interest | 4% interest | 6% interest |
|---|---|---|---|---|
| £5,000 | 1 year | £417 | £409 | £405 |
| £10,000 | 2 years | £417 | £401 | £390 |
| £20,000 | 3 years | £556 | £522 | £506 |
| £30,000 | 4 years | £625 | £573 | £549 |
| £50,000 | 5 years | £833 | £746 | £716 |
| £100,000 | 10 years | £833 | £680 | £613 |
Retirement: How Much Do You Need?
Use the 25× rule (also called the 4% rule): multiply your desired annual income in retirement by 25.
Retirement pot = Annual spending × 25
Example: You want £25,000/year in retirement.
Target pot = £25,000 × 25 = £625,000
At 4% annual withdrawal, a £625,000 portfolio theoretically lasts indefinitely.
Then use the savings formula to find how much to save monthly to reach £625,000 by your target retirement age.
Starting Early vs Starting Late
The earlier you start, the less you need to save monthly — because interest compounds for longer.
Goal: £100,000 by age 65, assuming 6% annual returns
| Age start | Years to save | Monthly needed |
|---|---|---|
| 25 | 40 years | £50 |
| 30 | 35 years | £70 |
| 35 | 30 years | £100 |
| 40 | 25 years | £145 |
| 45 | 20 years | £216 |
| 50 | 15 years | £343 |
| 55 | 10 years | £613 |
Starting at 25 instead of 45 requires saving £166 less per month for the same outcome.
Savings Account Types and Rates
| Account type | Typical AER | Best for |
|---|---|---|
| Instant access | 3–5% | Emergency fund |
| Fixed 1-year | 4–5.5% | Medium-term goals |
| Fixed 2–5 year | 4.5–6% | House deposit |
| ISA (UK) | Same as above | Tax-free returns |
| Pension (UK) | Variable | Retirement |
| S&S ISA | 5–10% long-term | Long-term (>10 years) |
Tips for Hitting Your Savings Goal
Automate it: Set up a standing order on payday. Saving what's left over at the end of the month rarely works.
Use high-yield accounts: An extra 1–2% compounds significantly over years.
Increase with income: When you get a pay rise, increase your savings rate before adjusting your lifestyle.
Name your accounts: "House deposit 2027" is more motivating than "Savings Account 2."