Bank Deposit Interest Calculator

What is Bank Deposit Interest?

Bank deposit interest is the amount of money a bank pays you for keeping your funds in a savings account or certificate of deposit (CD). It's essentially a reward for allowing the bank to use your money for its own investments and lending activities.

The Compound Interest Formula

The formula for calculating compound interest on a bank deposit is:

\[A = P(1 + \frac{r}{n})^{nt}\]

Where:

• \(A\) = Final amount
• \(P\) = Principal (initial deposit)
• \(r\) = Annual interest rate (in decimal form)
• \(n\) = Number of times interest is compounded per year
• \(t\) = Number of years

Step-by-Step Bank Deposit Interest Calculation

1. Determine your initial deposit amount (P), annual interest rate (r), compounding frequency (n), and time period (t).
2. Convert the annual interest rate to decimal form (divide by 100).
3. Identify the compounding frequency (daily = 365, monthly = 12, quarterly = 4, annually = 1).
4. Plug these values into the compound interest formula.
5. Calculate the final amount (A).
6. Subtract the initial deposit from the final amount to get the interest earned.

Example Calculation

Let's calculate the bank deposit interest for an initial deposit of $10,000, with an annual interest rate of 5%, compounded monthly, over 5 years:

1. \(P = \$10,000\), \(r = 5\% = 0.05\), \(n = 12\) (monthly compounding), \(t = 5\) years
2. \(A = 10000(1 + \frac{0.05}{12})^{12 \times 5} = \$12,833.59\)
3. Interest earned = \$12,833.59 - \$10,000 = \$2,833.59

Visual Representation

The green portion represents the initial deposit ($10,000), and the blue portion represents the interest earned ($2,833.59) over the 5-year period.