Calculating Savings Account Interest

Savings accounts allow you to make money from your money by doing the easiest task of all—nothing! You just leave money in a savings account for even one day, and it will have grown, imperceptibly maybe, but there will more money in your account, nonetheless.

How Can I Calculate Yearly Interest Rate?

If you are curious about how simple interest in your savings account is calculated, you can figure it out in the following three steps:

• Deposit your money in the bank. Let’s say it is $1,000.
• Determine the interest rate. Let’s say the interest rate is 4.00%
• If you do not touch that money, you will have earned $40.00 on the money (.04% x $1,000)

How Do I Calculate My Daily Interest?

The reality is that most savings accounts interest rates are calculated and compounded daily (compounded means the money is earning interest on interest).

Using the same example as above, you would take your take the interest and divide it by 365. In this case, the answer is .01095. So, for $1,000, you would be earning .1095 or just about 11 cents per day on the $1000.

Because that interest gets compounded daily, what happens is that the next day the interest gets calculated as .01095 x $1,000.10 instead of .01095 x $1,000. That means the amount increases each day. So, what occurs when the interest is compounded daily, is that more money is accruing. It’s not much in this case. At the end of a year with your interest compounding daily, you would have $1040.80.

The day you put money in the account it begins earning interest. So, the more money you put into the savings account, obviously the more money you will gain.

As with anything relating to banking whether online or at brick and mortar institutions, carefully research for the right savings account. Make sure it is doing the following for you:

• Compounding your interest daily
• Providing the highest interest rate you can find for your situation
• Giving you the withdrawal flexibility you want
• Offering convenient access to your funds
• Meeting your savings goals
• Insuring your deposits through the FDIC.

There are so many different financial institutions offering every type of savings account. However, one of the reasons the interest rates are so low is that they are not lending as aggressively as they have in the past. Still, putting your money in a savings account remains good financial sense.