How to use this calculator
- Amount and years: the same money goes into each for the same length of time.
- APY: the savings account’s or CD’s annual percentage yield, as your bank shows it.
- Tax on interest: interest is taxed as ordinary income, at your regular rate.
- Dividend stock: today’s yield, how fast the dividend grows, and how fast the share price grows.
- Tax on dividends: qualified dividends from most US stocks are taxed at 0%, 15% or 20%.
The formula
Interest each year = Balance × APY × (1 − Tax on interest)
Savings balance = Balance + Interest each year
Dividend stock value = Shares × Share price + Dividends kept as cash
The APY already includes compounding within the year, so the savings balance grows by the APY once a year, and the tax on that year’s interest comes out of it. The dividend stock is simulated month by month, as in the other calculators here: the price rises a little every month, dividends arrive every quarter, the dividend per share is raised once a year, and tax comes out of each payment before it’s reinvested.
Worked example
These are the numbers already in the calculator: $10,000 for 10 years, in a savings account paying 4% APY taxed at 22%, or in a stock yielding 3.5% whose dividend grows 5% a year and whose price grows 4% a year, with dividends taxed at 15% and reinvested.
- Year 1 interest: $10,000 × 0.04 × (1 − 0.22) = $312.00. Year 1 dividends after tax: $300.78. The savings account pays a little more at first.
- The dividend grows 5% a year and buys more shares, so from year 2 it pays more than the interest. In year 10 it pays $612.18, against $411.38 of interest.
- After 10 years the savings account holds $13,596.56 and the stock is worth $20,022.38. Most of that gap is the 4% a year price growth you assumed.
- Set the price growth to 0 and the stock ends at $14,512.41: it still pulls ahead, but only in year 3, and only because its dividend keeps rising while the savings rate stays flat.
The difference the numbers don’t show
A savings account balance never goes down, and deposits at an FDIC-insured bank are insured up to $250,000 per depositor, per bank, per ownership category. A stock’s price can fall by a third in a bad year, and a company can cut its dividend. The calculator uses steady rates for both, so it shows what each could earn, not how bumpy the ride would be. Money you’ll need in the next few years usually belongs in savings or CDs; money you can leave alone for a long time is where stocks can earn their extra risk.
Rates change
A CD’s rate is fixed only for its term, and a savings account’s rate can change any time the bank decides. When rates fall, savings income falls with them, while a company that keeps raising its dividend keeps paying more. When rates rise, the reverse can happen. Try the calculator with a lower APY to see how much of the result depends on today’s rate.
Tip: to compare the income alone, set the share price growth to 0. Then the only differences left are the starting rates, the dividend growth and the two tax rates.
To see which tax rate applies to your dividends, use the Dividend Tax Calculator. To compare a dividend stock with a stock that pays nothing, try the Dividend vs Growth Stock Calculator. Comparing with Treasury bills instead? Their interest isn’t taxed by your state; the Dividend Yield vs T-Bill Calculator takes that into account.