How Much to Save Each Month for a Down Payment (With Interest)
October 21, 2026
To reach a savings goal, the monthly deposit is: goal × r ÷ ((1 + r)^n − 1), where r is the monthly interest rate and n is the number of months. For a $60,000 goal in 5 years in an account paying 4% compounded monthly, the deposit is about $905 a month. Without interest you would need $1,000 a month, so interest saves you about $95 a month.
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Monthly rate r = 0.04 ÷ 12 = 0.003333, n = 60. (1 + r)^60 = 1.2209, so the denominator is 0.2209. Deposit = 60,000 × 0.003333 ÷ 0.2209 = $905.
Total deposits are 60 × $905 = $54,300, and interest contributes the other $5,700.
| Years to goal | Monthly deposit at 0% | Monthly deposit at 4% |
|---|---|---|
| 3 | $1,667 | $1,571 |
| 5 | $1,000 | $905 |
| 7 | $714 | $620 |
| 10 | $500 | $407 |
What Changes the Answer
The longer the timeline, the more interest helps. Over 10 years, a 4% account reduces the monthly deposit from $500 to about $407. Raising the interest rate from 4% to 5% on the 5-year plan would drop the deposit to roughly $882.
A high-yield savings account, certificate of deposit, or Treasury bills can pay more than a basic account for money you need on a known date. For goals within five years, avoid risky investments, since a market drop right before the purchase can derail the plan.
Making the Plan Stick
Set up an automatic transfer on payday into a separate account, so the money is out of sight. Consider raising the deposit when your income rises, and use windfalls such as tax refunds to jump ahead.
Remember closing costs and moving expenses, and your target price may rise during the saving period. Rebuild the plan once a year with updated numbers.
Frequently Asked Questions
How do I calculate monthly savings for a goal?
Use the sinking-fund formula: goal × r ÷ ((1 + r)^n − 1), with monthly rate r and n months.
Does interest make a big difference over 5 years?
A little. At 4% it reduces the required monthly deposit by about 9.5% on a 5-year goal.
Where should I keep down payment savings?
In stable, accessible accounts such as high-yield savings, CDs, or short-term Treasuries, rather than volatile assets.
How much should I put down on a home?
20% avoids PMI on conventional loans, but many buyers put down less. Compare the costs of PMI with the benefit of buying sooner.