Savings Account Interest Rate Calculator

What is a Savings Account Interest Rate?

A savings account interest rate is the percentage of your account balance that a bank pays you for keeping your money in the account. This rate is typically expressed as an Annual Percentage Yield (APY) and can vary depending on the bank and the type of savings account.

The Compound Interest Formula

The formula for calculating compound interest in a savings account is:

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

Where:

• \(A\) = Final amount
• \(P\) = Principal amount (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 Savings Account Interest Calculation

1. Determine your initial deposit (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 number of times interest is compounded per year (n):
   • Daily: n = 365
   • Monthly: n = 12
   • Quarterly: n = 4
   • Annually: n = 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 interest earned on a savings account with an initial deposit of $10,000, an annual interest rate of 2%, compounded monthly, over 5 years:

1. \(P = \$10,000\), \(r = 2\% = 0.02\), \(n = 12\) (monthly compounding), \(t = 5\) years
2. \(A = 10000(1 + \frac{0.02}{12})^{12 \times 5} = \$11,041.90\)
3. Interest earned = \$11,041.90 - \$10,000 = \$1,041.90

Visual Representation

The green portion represents the initial deposit ($10,000), and the blue portion represents the interest earned ($1,041.90) over 5 years.