How to Calculate the Interest Rate for a Savings Account

A simple formula will reveal the interest accrued on your savings account.

A simple formula will reveal the interest accrued on your savings account.

The money you place in a savings account will produce an income known as interest. This gain is a percentage of your current balance and is listed, by the bank, as an annual return. The money gained in interest will, itself, earn interest, which may make the potential earnings of your savings account seem difficult to calculate. You can use a simple formula, however, to make an accurate estimate of your eventual gains.

Step 1

Figure out the annual return on your original balance. You can do this by first multiplying your initial deposit by the given rate of interest. For example, placing $15,000 in an account that earns an annual interest rate of 3 percent would be written as $15,000 x 0.03. The resulting number is the amount of interest you would receive during the course of one year; in this case, $450.

Step 2

Break down your annual return into daily increments. Simply take the number you calculated earlier, $450, and divide it by 365 days. This example would give you $1.23 accrued daily on your account. However, most banks will deposit your interest earnings at the end of each month. For a month of 30 days, this will total $36.98, which would make your ending balance $15,036.98.

Step 3

Calculate the interest on your new balance. Many banks offer saving accounts that work according to the principle of compound interest. This means that you will earn additional interest on whatever money you have deposited, along with any you have previously earned in interest. The interest is usually accumulated on a daily basis and paid out monthly. At the end of 30 days, therefore, the same 3 percent would begin to be applied to your new balance of $15,036.98. You will start to receive a daily return on this amount, which will accumulate until it is added to your account at the end of the month.

About the Author

Harold Sconiers is a jack of many trades. As an adolescent, he achieved accolades as an amateur boxer, subsequently taking his skills into the professional ranks. At the same time, his naturally creative mind allowed him to delve into developing other aspects of his artistic side. He is a community actor, writer, amateur filmmaker and inventor.

Photo Credits

  • Jupiterimages/ Images