How to Calculate Bank Account Interest
Many people open bank accounts that are interest bearing because it makes sense to allow your money to grow. However, when it comes to understanding how this interest is calculated, a good majority of people are confused. Understanding your banking account's interest rates and how this is calculated helps you to see how much money will be added to your balance over time.
- Open an interest-bearing bank
account and make a deposit. Interest is accrued from the money you
put into your account. The bank sets the interest rate when you open
the account. Most banks are competitive in this area because they
want your business, but always choose a bank that has the highest
interest rate and terms, because this means more money for you in
the long run. - Calculate your interest via a
daily balance. This is one way to know the amount of interest your
bank is adding or will add to your money. However, even if you
calculate on a daily basis, your bank normally pays the interest
once per month. Therefore, you can also choose to calculate monthly,
so you can see if your calculations are in line with your bank. Keep
in mind though, the interest on your money is compounded on a daily
basis, you just do not see the money in your account until the end
or beginning of the following month. - Leave your money in your bank
account. The way to get the most interest is to leave the money
alone and add to it rather than make withdrawals. For instance, if
you have a savings account that has $10,000 and your bank pays 3.5
percent interest and you leave this amount in the account for 12
months, your calculations would be as follows: your interest divided
by 100 and then multiplied by your balance. Therefore, it would look
like this 3/100 x 10,000 and you will earn $300 or $25 per month for
12 months.