Savings refer to the part of the disposable income that has not been spent or being consumed but is invested or accumulated either directly, such as in capital investment or indirectly, such as through purchase of securities. Accumulated Savings are like surplus income that are or are not yet assessed for any purpose.
Planning ahead with Accumulated Savings
Imagine you want to save money for a specific reason. Most of the people start saving with a specific aim in mind, for instance saving enough for their after retirement years. Accumulated Savings can help you fulfill a number of your future desires. You can deposit the money you save in a bank account or you can invest in securities in order to let your money grow through compounding interest.
Calculating Accumulated Savings
An Accumulated Savings plan would include the funds that you are able to put aside or invest each period (month) and the interest that you would accrue on these savings. The formula for calculating Accumulated Savings would be:
AS = P (1 + r/n)Yn
where AS stands for Accumulated Savings, P stands for the amount at the beginning, r/n stands for the interest rate upon the number of times that interest is compounded each year, which is usually 12 and Yn refers to the number of years. So, if you start with a balance of INR 500 compounded monthly at 2% interest, for 5 years then according to the above formula, the amount at the end the end of 5 years would be 500 (1 + .02/12)60 i.e. INR 552.54 approx.
Just loved the formula of calculating accumulated savingsand the example plus the use of the formula. Accumulated savings no doubt helps one to save now for future use. Today’s surplus is tomorrow’s gain. Will one be able to withdraw from these savings? Does the rate of interest differ for these savings?