How to calculate interest rates on a savings account?
Interest rates can be confusing, especially when it comes to savings accounts. Interest rates change all the time and it’s important to be aware of what is going on with the interest rates you’ll be paying with your savings account. Today, if you have an interest rate of say, 0.09%, you will earn 9 basis points per $1. So, if you have an account that pays $100 per month in interest, and you deposit $100 every month, you will earn a total of $9.00, but if you deposit and earn $1,000.
Interest rates vary on savings accounts, and when you open one, there are usually some rules that you need to follow to make it work with your budget. Sometimes these rules involve things like fees, minimum deposits and transfer limits. The interest rate that you are earning is usually based on the secondary market rate, which could be much higher than the bank’s prime rate or its prime rate plus a small margin.
If you have or want to have a savings account, you will surely wonder how to calculate the interest on a savings account? And know what they pay and not pay others. You can check here the formula for calculating interest on a savings account.
How to calculate interest on a savings account?
Many people decide to save money for the medium or long term, whether it be for the reason that it is from buying a car, a house, traveling on vacation or having money save for contingencies or because they want to have money save or for any other reason to save money. For what there are savings accounts and what we will see about their interests.
Beyond or not deciding the purpose of why save money and once they decide to do it through a savings account and the bank chosen for it is oblige to return the saved funds and pay for the use of those funds. It is where the Don interest appears, which is the contribution that is paid for using the money.
Savings Account Interest Calculation
In the event that the monthly interest rate is 2%, it means that the bank will pay the saver $2 for every $100 they have save during the month. As long as the money remains in the savings account for more than one monthly period, then the interest rate is apply on the higher and higher amounts save.
For example, if the monthly interest rate were 2% and the money saved was around $10,000, at the end of the month the bank would have to pay them $200 in the form of remuneration, that is, $10,000*2% = $200.
At the end of the second month, the bank’s return of 2% per month will be on larger savings, about $10,200. And the bank will again be obliged to repay, in this case $204 more being $10,200*2%=204. Thus, the bank must return the amount that they have saved, about $10,000, together with the remuneration for using the money, being $404= 200 + 204. This is then about $10,402.
There are tools such as an online simulator to calculate and find out how much money they can save in a given period and to be able to calculate online the amounts they need to save to meet their savings goals. To perform the calculation in an online simulator, you must enter the information of four basic assumptions and thus know the answer to how much do I need to save per month?
- How much money do I have to start my savings?
- Money can I save monthly?
- How long do I plan to save for?
- What interest rate is paid for savings?
In this way they will be able to know the defined conditions in which they will save X Amount of pesos. Of that figure, how much corresponds to the deposited funds and how much of the rest, in pesos, is the remuneration for the use of the funds, that is, the payment of interest. Being the best way to know what they can save and the interest that the bank grants.