Calculate interest savings account can be a difficult concept to understand.  Calculating how much interest a savings account will earn in a month involves many concepts like compound interest, annual percentage rate, annual percentage yield rate, etc. This article will show you how to calculate how much interest you wil earn a month on your high interest rate savings account.

How do you calculate interest savings account?

Let’s use an example to show how to calculate the interest earned.
Let’s pretend that we have $30,000 in a savings account earning 5% interest.  Typically interest is compounded daily and credited to you high interest savings account monthly.

First thing to know is that savings account nterest is calculated on an annual basis. So, if our interest rate is 5%, we will earn 5% interest on our savings account balance over 1 year.  But, you will get interest payments added to your account every month.

Let’s first calculate the interest that we will earn on our $30,000 during the year.  If the high interest rate is 5%,  we take 5/100 times the balance in your savings account ($30,000).  Therefore $30,000 x .05 is $1,500.  You will earn $1,500 over the first year.

But that is a very easy interest calculation.  Now let’s determine how much interest you earn every day that in your high interest rate savings account.

So if you earn $1,500 in a year, you would divide $1,500 by 365 days which equals $4.11 a day.  If you want to know the amoutn of interest you earn in a month, you divide $1,500 by 12 which equals $125 in interest.

Many banks however calculate interest rate on an annual basis, accrued daily, and paid monthly.    There for if you see a bank advertising a high yield savings account with 5% interest this means that it will earn 5% over a year.   The bank calulates your interest daily so we need to understand this savings account interest calculator too.

Now let’s try to understand compound interest that your savings account earns.  In the example above we said that we earned $4.11 interest the first day.  But, does it earn $4.11 every day? No because the savings account interest is added to your account monthly.  At the end of the month, the bank will pay you the interest you’ve accumulated in this month. This monthly payment is if there are 31 days in the month equal to 5/100 times $30,000 times 31/365 which equals $127 dollars of interest.  So after the first month of putting you money in your savings account your balance will be $30,127.

The next day, your bank will start accruing your interest earned again. So the daily interest will be 5/100 x 1/365 x $30,127.  Because of compounding itnerest the interest next month will be higher than $127.  This is the power of compound interest.  The next month we will earn the following intereest.  5/100 x $30,127 x 31/365 = $127.95 interest. As you can see this month we earned $.95 more than last month ($127.95 - $127).  This is the power of compound interest.

I hope that this helps you to understand how to calculate interest savings account.