### How to calculate monthly interest rate on savings account -

## What Is APY and What It Means for Your Savings

Have you noticed banks quoting their “APYs” and wondered what that means? APY stands for annual percentage yield. Banks are required to prominently display this rate for their deposit accounts, like savings accounts and certificates of deposit (CDs). APY gives you the most accurate idea of what your money could earn in a year and an easy way to compare the returns on different deposit account offerings.

### What Is APY?

APY indicates the total amount of interest you earn on a deposit account over one year, assuming you do not add or withdraw funds for the entire year. The annual percentage yield is expressed as an annualized rate. APY includes your interest rate and the frequency of **compounding interest**, which is the interest you earn on your principal plus the interest on your earnings. As you can see, APY includes several factors to give you a big-picture view of your earning potential on your deposit account.

**Fixed vs. variable APY**

APYs can be associated with variable or fixed rate deposit accounts. With a variable rate account, the APY can change at any time. Variable rate accounts — typically savings or money market accounts (MMA) — will usually fluctuate with market rates. On the other hand, fixed rate accounts have an APY that does not change during the term of the account. For example, **CD accounts** usually have a fixed rate for the term of the CD.

Some banks may offer different APYs that apply to specified balance levels or balance tiers. In other words, you may earn a different APY based on how much money is in your account. For example, some banks may offer a higher APY for higher account balances.

**APY vs. APR**

It’s important to note that annual percentage yield (APY) is different from **annual percentage rate ( APR).** APR tells you how much it costs to borrow money over the span of a year and applies to a variety of credit accounts, including mortgages, credit cards, home equity loans and personal loans. Learn more about the

**difference between APY and APR**

**.**

### How to Calculate APY

You can calculate the APY on any account you’re considering a few different ways if you like to figure things out for yourself.

### By Hand

If you want to go old school with paper and pencil (and maybe a calculator), just apply the basic formula for APY, which takes into account the interest rate and the number of compounding periods per year. APY = (1 + R/N)^{N }– 1; with ‘R’ being the nominal interest rate, and ‘N’ being the number of compounding periods per year.

### Spreadsheets

You can also create a simple spreadsheet to do the calculations for you. This option gives you the ability to plug in different numbers to easily see how different variables affect the overall APY. Here’s __how to calculate both APY and APR in a spreadsheet.__

### APY Calculator

Hands down, an APY calculator is the easiest way to calculate APY. You can also use ours to calculate your potential interest earnings.

### So what does this all mean for your wallet?

APY is designed to help consumers comparison-shop for deposit accounts. Simply put, the higher the APY, the more you can earn and the faster your bank account balance may grow. The APY normalizes many factors related to the interest calculations on deposit accounts (for example, frequency of compounding) so consumers can make simple comparisons between different deposit accounts and don’t have to get caught up in the details. A compound interest calculator**, like this one**, can help you make comparisons based on your initial investment, monthly contributions you plan to make, the length of time you keep the account, and compound frequency.

Take a look at the difference in potential interest earned at the end of one year with a $25,000 deposit, and have a little fun imagining the different things that extra interest could buy:

If you want to see how much you can earn, check out Ally Bank’s **Savings Interest Calculator**.

### Pay Attention to APY for the Most Accurate Picture of Your Earnings

Don’t be tempted to ignore seemingly small differences in APYs — those numbers can really add up over time. When you’re looking to bolster your bottom line, it pays to compare APYs on CDs (certificates of deposit), savings accounts and any other savings product you consider. That way you can be sure you’re getting the most accurate estimate of your potential earnings.

See your APY options from Ally Bank for CDs, savings accounts, checking and money market accounts, and Individual Retirement Accounts (IRAs). **Compare rates. **

## Compare Savings and Money Market Accounts^{1}

^{1}Those applying online for a Classic Savings account must have a working mobile phone.

^{2}To automatically qualify for a Premier Relationship Interest Rate, you must have an open Bank of the West Premier Checking account and one Choice Money Market Savings account with the same ownership. The Premier Relationship Interest Rate will be earned on your Choice Money Market Savings account, and is calculated as follows: On the last day of your statement cycle, your Choice Money Market Savings account’s end-of-day collected balance tier will be determined. If the Bank is paying a Premier Relationship Premium for that balance tier, that Premium will be added to the standard interest rate for the balance tier into which your daily end-of-day balance falls each day during the next full statement cycle. The Premier Relationship Premium will be applied beginning the first business day of the statement cycle. Once set, the Premier Relationship Premium will not change during that statement cycle. The standard interest rate can change as frequently as daily. The Premier Relationship Interest Rate is compounded daily and paid to your Choice Money Market Savings account on the last day of the statement cycle. If you do not qualify for a Premier Relationship Premium as of the last day of any statement cycle, your account will earn only the standard interest rate during the next full statement cycle.

^{3}If there are not sufficient funds in your checking account to complete a scheduled Auto-Save transfer to your savings or money market account, no transfer will occur, even if you have available overdraft protection through Savings Overdraft Protection and/or Gold Line. This means that if your savings or money market account monthly service charge would have been waived as a result of an eligible Auto-Save or recurring transfer from your checking account, you may incur a monthly service charge for that statement cycle.

^{4}Wireless carriers may charge fees for text transmissions or data usage. Message frequency depends on account settings. Text HELP to BKWST for help. Availability of Mobile Banking may be affected by your mobile device's coverage area.

*Rates may change at any time without prior notice, before or after the account is opened. Fees could reduce earnings on the account. Additional restrictions may apply. This account earns interest at a variable rate.

Securities and variable annuities are offered through BancWest Investment Services, a registered broker/dealer, member FINRA/SIPC, and SEC Registered Investment Adviser. Financial Advisors are Registered Representatives of BancWest Investment Services. Fixed annuities/insurance products are offered through BancWest Insurance Agency in California, (License #0C52321) and through BancWest Investment Services, Inc. in all other states where it is licensed to do business. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. Bank of the West and its various affiliates and subsidiaries are not tax or legal advisors.

BancWest Investment Services is a wholly owned subsidiary of Bank of the West. Bank of the West is a wholly owned subsidiary of BNP Paribas.

### Investment and Insurance Products:

**NOT FDIC INSURED****NOT BANK GUARANTEED****MAY LOSE VALUE****NOT A DEPOSIT****NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY**

## Effective interest rate

The **effective interest rate** (**EIR**), **effective annual interest rate**, **annual equivalent rate** (**AER**) or simply **effective rate** is the interest rate on a loan or financial product restated from the nominal interest rate and expressed as the equivalent interest rate if compound interest was payable annually in arrears.

It is used to compare the interest rates between loans with different compounding periods, such as weekly, monthly, half-yearly or yearly. The effective interest rate sometimes differs in one important respect from the annual percentage rate (APR): the APR method converts this weekly or monthly interest rate into what would be called an annual rate that (in some parts of the world) **doesn't take into account the effect of compounding.**^{[1]}

By contrast, in the EIR, the periodic rate is annualized using compounding. It is the standard in the European Union and many other countries around the world.

The EIR is precise in financial terms, because it allows for the effects of compounding, i.e. the fact that for each period, interest is not calculated on the principal, but on the amount accumulated at the end of the previous period, including capital and interest. This reasoning is easily understandable when looking at savings: if interest is capitalized every month, then in every month the saver earns interest on the entire sum, including interest from the previous period. Thus if one starts with $1000 and earns interest at 2% every month, the accumulated sum at the end of the year is $1268.24, giving an effective interest rate of about 26.8%, not 24%.

The term nominal EIR or nominal APR can (subject to legislation) be used to refer to an annualized rate that does not take into account front-fees and other costs can be included.

Annual percentage yield or effective annual yield is the analogous concept used for savings or investment products, such as a certificate of deposit. Since any loan is an investment product for the lender, the terms may be used to apply to the same transaction, depending on the point of view.

Effective annual interest or yield may be calculated or applied differently depending on the circumstances, and the definition should be studied carefully. For example, a bank may refer to the yield on a loan portfolio after expected losses as its effective yield and include income from other fees, meaning that the interest paid by each borrower may differ substantially from the bank's effective yield.

### Calculation[edit]

The effective interest rate is calculated as if compounded annually. The effective rate is calculated in the following way, where *r* is the effective annual rate, *i* the nominal rate, and *n* the number of compounding periods per year (for example, 12 for monthly compounding):

For example, a nominal interest rate of 6% compounded monthly is equivalent to an effective interest rate of 6.17%. 6% compounded monthly is credited as 6%/12 = 0.005 every month. After one year, the initial capital is increased by the factor (1 + 0.005)^{12} ≈ 1.0617.

When the frequency of compounding is increased up to infinity the calculation will be:

The yield depends on the frequency of compounding:

Nominal annual rate | Frequency of compounding | ||||
---|---|---|---|---|---|

Semi-annual | Quarterly | Monthly | Daily | Continuous | |

1% | 1.003% | 1.004% | 1.005% | 1.005% | 1.005% |

5% | 5.063% | 5.095% | 5.116% | 5.127% | 5.127% |

10% | 10.250% | 10.381% | 10.471% | 10.516% | 10.517% |

15% | 15.563% | 15.865% | 16.075% | 16.180% | 16.183% |

20% | 21.000% | 21.551% | 21.939% | 22.134% | 22.140% |

30% | 32.250% | 33.547% | 34.489% | 34.969% | 34.986% |

40% | 44.000% | 46.410% | 48.213% | 49.150% | 49.182% |

50% | 56.250% | 60.181% | 63.209% | 64.816% | 64.872% |

The effective interest rate is a special case of the internal rate of return.

If the monthly interest rate j is known and remains constant throughout the year, the effective annual rate can be calculated as follows:

The annual percentage rate (APR) is calculated in the following way, where i is the interest rate for the period and n is the number of periods.

- APR =
*i*×*n*

### Effective interest rate (accountancy)[edit]

In accountancy the term effective interest rate is used to describe the rate used to calculate interest expense or income under the effective interest method. This is not the same as the effective annual rate, and is usually stated as an APR rate.

### See also[edit]

### Notes[edit]

### References[edit]

Need to be edited

### External links[edit]

## Savings interest calculator

### Calculate your savings return

**About our Savings Calculator**You can use our handy savings calculator to work out how much interest you are likely to earn on your savings.

**How do interest rates work?**An interest rate is a percentage of how much you will earn based on the amount you save. Interest is paid to you by your savings provider. Interest earned on your savings can then be used to help you save towards large payments, for example mortgage deposits.

**Does the base rate affect my interest payments?**The Bank of England Base Rate is separate to all of our savings interest rates at the Tipton. Unless your savings account specifically states that it follows base rate, there will be no automatic changes to your interest rate when base rate changes. However, it is not uncommon for increases or decreases in base rates to influence providers decisions in the savings rates they offer.

**How does compound interest work?**Compound interest is where interest is added to the amount you have saved, and you then continue to earn interest on the higher amount. For example, if you have £1,000 saved and total interest of £1.00 is paid on 31 December, any future interest will be calculated based on £1,001.00.

**How often is compound interest paid on a savings account?**This is solely dependent on the account. All savings account providers are required to show a Summary Box for each account. The frequency of interest payments will be detailed in this.

## How do savings accounts work?

You're probably already familiar with how a checking account works—it's what most people use to make day-to-day financial transactions, like depositing paychecks, withdrawing money from an ATM, or setting up automatic debits to pay for the cable bill each month.

But a checking account has another important partner in crime, and that's the savings account. A savings account, like a checking account, lets you keep your money in a safe place.

If used the right way, a savings account can help you curb impulsive, unnecessary spending and meet your long-term goals.

But unlike most checking accounts, you can also earn a small amount of interest each month, and if used the right way, a savings account can help you curb impulsive, unnecessary spending and meet your long-term goals.

Savings accounts are offered at most banks. Like checking accounts, savings accounts are FDIC-insured, meaning the bank insures your money up to $250,000. Basically if the bank goes out of business, you won't risk losing your money up to that amount—making a savings account a safer alternative to stashing your cash under your mattress.

The interest you earn on savings accounts can be compounded daily or monthly and rates vary among financial institutions.

Some savings accounts may require a minimum balance and most offer an interest rate to help your savings grow (even if only by a few pennies). The interest you earn on savings accounts can be compounded daily or monthly and rates vary among financial institutions, so be sure to ask your bank or credit union about its current rates before you enroll.

If you're already familiar with savings accounts, you probably know the interest rates are pretty low these days.

Why should I open up a savings account if my checking account is working just fine?

With such measly returns, you may be asking, “Why should I bother opening up a savings account if my checking account is working just fine?” If you’re looking for ways to save for the future, a savings account could be the missing piece you need to help you avoid overspending and stash away some cash.

By setting up automatic transfers from your checking account to your savings account, you can limit your temptation to spend all of your money at once—and you don’t have to think about it every time you want to save money.

Stephanie Halligan

Stephanie is the creator of The Empowered Dollar, a website dedicated to helping millennials fix their finances and find their stride in money and life. When she’s not blogging, Stephanie is designing financial education curriculum that teach millennials and low-income families about smart money management.

Источник: https://www.tiaa.org/public/learn/personal-finance-101/how-do-savings-accounts-work

Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our marketing partners don’t review, approve or wells fargo malaysia address our editorial content. It’s accurate to the best of our knowledge when posted.

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Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

### One of the best parts of opening a savings account is watching the money you deposit grow over time, thanks to interest.

Savings accounts typically grow with compound interest — that means you earn interest both on the amount you’ve saved and any interest you previously accrued.

Let’s a take a look at how compound interest works and factors that can affect how quickly your money grows.

Deposit $1, get a shot at $20,000 Learn More**What is compound interest on a savings account?****How often does a savings account compound interest?****How do you calculate compound interest?****Factors that affect how much interest you earn****What’s next?**

**What is compound interest on a savings account?**

You may have heard of interest on a credit card or car loan — that’s the cost of borrowing money from a bank or lender — and it’s expressed as a rate.

On the flipside, when financial institutions borrow money from you, they pay you interest. They typically pay interest on deposit accounts — such as savings accounts, checking accounts and money market accounts — in exchange for the ability to use your money until you need it.

Savings accounts can earn interest one of two ways: through simple interest or compound interest. With simple interest, you earn interest *only* on your principal — the amount you’ve deposited into your account.

But compound interest allows you to earn interest on your principal *and* the interest you’ve already earned.

Let’s say your bank compounds interest on your account every month. After the first month, the bank pays interest on the principal. The next month, the bank pays interest on the principal plus the previous interest you earned. From there, the interest continues to accumulate each month on the combined amount of your savings and interest earned.

In general, you’ll earn more on an account with compound interest than on one with simple interest.

**How often does a savings account compound interest?**

Depending on your financial institution and the account, interest can compound daily, monthly, quarterly **how to calculate monthly interest rate on savings account** annually. The more often interest compounds, the faster your balance will grow.

The amount of interest you earn each year, based on the total amount of interest earned and how often interest is compounded, is expressed as the annual percentage yield, or APY. The more frequently interest is compounded, the higher your APY — and therefore, your interest earnings — will be.

**How do you calculate compound interest?**

An online compound interest calculator can help you crunch the numbers, but you can also do the math yourself. Here’s the equation for calculating compound interest.

Here’s an example to help you figure out the future value of your savings account.

Let’s say you open an account **how to calculate monthly interest rate on savings account** an initial deposit of **$2,000 **(this is your principal, or P). If your annual interest rate is 2%, then **R = 0.02**. If your bank compounds interest once a month, **N =****12 **here. Let’s say you want to calculate how much you’d have in savings after two years (**T = 2**).

Your calculation would look like this.

**A = 2,000(1+ 0.02/12) ^{(12 x 2)}**

At the end of two years — assuming you haven’t withdrawn or made any deposits to the account — you’d have $2,081.55. Your original deposit was $2,000, so you would’ve earned $81.55 in interest.

Deposit $1, get a shot at $20,000 Learn More**Factors that affect how much interest you earn**

A range of factors can influence how much interest you can earn — and how quickly you earn it. Here are a few.

**The amount of money in your account**

Generally, the more money you have in your savings account, the more interest you’ll earn over time. Making recurring deposits means you’ll earn interest on a larger balance, while withdrawing money means you’ll accrue interest on a smaller balance. In other words, it pays to keep the money in your account.

**Your interest rate**

Your APY may change over time, especially if the Federal Reserve raises or lowers the federal funds rate, so be sure to pay attention to any rate changes.

How frequently your financial institution compounds interest will affect how much you earn, too — another reason why comparing APYs across savings accounts is important.

**Account fees**

While account fees won’t change the amount of interest you earn, they could offset your earnings — or, worse yet, you could end up paying more in fees than you earn in interest. Depending on the institution and the account, you might pay a monthly maintenance fee or fees for exceeding your withdrawal limit, requiring overdraft protection or using an ATM, among others. Banks usually offer workarounds to avoid some monthly fees, such as keeping a minimum balance, so read all the terms before opening an account.

**What’s next?**

Whether you’re saving for a car down payment, building an emergency fund or working toward another savings goal, a savings account with compound interest could be a good place to stash your money. The interest works in your favor, and you can access the funds in a pinch.

To help find the best savings account for your financial goals, shop around and compare APYs and terms from a range of institutions. Keep in mind that some online banks may offer higher rates than brick-and-mortar banks or credit unions.

You might also consider a high-yield savings account, which offers a higher interest rate than traditional savings accounts. Just make sure the bank, credit union or other depository institution is insured by the FDIC or NCUA, and pay attention to the fine print, such as minimum deposit or balance requirements, how often the interest compounds, and any fees — details that can affect your rate of return in the long run.

Deposit $1, get a shot at $20,000 Learn More**About the author:** Kim Porter is a writer and editor who has written for AARP the Magazine, Credit Karma, Reviewed.com, U.S. News & World Report, and more. Her favorite topics include maximizing credit card rewards and budgeting. Wh… Read more.

#### Read More

## Compare Savings and Money Market Accounts^{1}

^{1}Those applying online for a Classic Savings account must have a working mobile phone.

^{2}To automatically qualify for a Premier Relationship Interest Rate, you must have an open Bank of the West Premier Checking account and one Choice Money Market Savings account with the same ownership. The Premier Relationship Interest Rate will be earned on your Choice Money Market Savings account, and is calculated as follows: On the last day of your statement cycle, your Choice Money Market Savings account’s end-of-day collected balance tier will be determined. If the Bank is paying a Premier Relationship Premium for that balance tier, that Premium will be added to the standard interest rate for the balance tier into which your daily end-of-day balance falls each day during the next full statement cycle. The Premier Relationship Premium will be applied beginning the first business day of the statement cycle. Once set, the Premier Relationship Premium will not change during that statement cycle. The standard interest rate can change as frequently as daily. The Premier Relationship Interest Rate is compounded daily and paid to your Choice Money Market Savings account on the last day of the statement cycle. If you do not qualify for a Premier Relationship Premium as of the last day of any statement cycle, your account will earn only the standard interest rate during the next full statement cycle.

^{3}If there are not sufficient funds in your checking account to complete a scheduled Auto-Save transfer to your savings or money market account, no transfer will occur, even if you have available overdraft protection through Savings Overdraft Protection and/or Gold Line. This flea market san jose ca hours that if your savings or money market account monthly service charge would have been waived as a result of an eligible Auto-Save or recurring transfer from your checking account, you may incur a monthly service charge for that statement cycle.

^{4}Wireless carriers may charge fees for text whats account number on debit card or data usage. Message frequency depends on account settings. Text HELP to BKWST for help. Availability of Mobile Banking may be affected by your mobile device's coverage area.

*Rates may change at any time without prior notice, before or after the account is opened. Fees could reduce earnings on the account. Additional restrictions may apply. This account earns interest at a variable rate.

Securities and variable annuities are offered through BancWest Investment Services, a registered broker/dealer, member FINRA/SIPC, and SEC Registered Investment Adviser. Financial Advisors are Registered Representatives of BancWest Investment Services. Fixed annuities/insurance products are offered through BancWest Insurance Agency in California, (License #0C52321) and through BancWest Investment Services, Inc. in all other states where it is licensed to do business. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. Bank of the West and its various affiliates and subsidiaries are not tax or legal advisors.

BancWest Investment Services is a wholly owned subsidiary of Bank of the West. Bank of the West is a wholly owned subsidiary of BNP Paribas.

### Investment and Insurance Products:

**NOT FDIC INSURED****NOT BANK GUARANTEED****MAY LOSE VALUE****NOT A DEPOSIT****NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY**

## Effective interest rate

The **effective interest rate** (**EIR**), **effective annual interest rate**, **annual equivalent rate** (**AER**) or simply **effective rate** is the interest rate on a loan or financial product restated from the nominal interest rate and expressed as the equivalent interest rate if compound interest was payable annually in arrears.

It is used to compare the interest rates between loans with different compounding periods, such as weekly, monthly, half-yearly or yearly. The effective interest rate sometimes differs in one important respect from the annual percentage rate (APR): the APR method converts this weekly or monthly interest rate into what would be called an annual rate that (in some parts of the world) **doesn't take into account the effect of compounding.**^{[1]}

By contrast, in the EIR, the periodic rate is annualized using compounding. It is the standard in the European Union and many other countries around the world.

The EIR is precise in financial terms, because it allows for the effects of compounding, i.e. the fact that for each period, interest is not calculated on the principal, but on the amount accumulated at the end of the previous period, including capital and interest. This reasoning is easily understandable when looking at savings: if interest is capitalized every month, then in every month the saver earns interest on the entire sum, including interest from the previous period. Thus if one starts with $1000 and earns interest at 2% every month, the accumulated sum at the end of the year is $1268.24, giving an effective interest rate of about 26.8%, not 24%.

The term nominal EIR or nominal APR can (subject to legislation) be used to refer to an annualized rate that does not take into account front-fees and other costs can be included.

Annual percentage yield or effective annual yield is the analogous concept used for savings or investment products, such as a certificate of deposit. Since any loan is an investment product for the lender, the terms may be used to apply to the same transaction, depending on the point of view.

Effective annual interest or yield may be calculated or applied differently depending on the circumstances, and the definition should be studied carefully. For example, a bank may refer to the yield on a loan portfolio after expected losses as its effective yield and include income from other fees, meaning that the interest paid by each borrower may differ substantially from the bank's effective yield.

### Calculation[edit]

The effective interest rate is calculated as if compounded annually. The effective rate is calculated in the following way, where *r* is the effective annual rate, *i* the nominal rate, and *n* the number of compounding periods per year (for example, 12 for monthly compounding):

For example, a nominal interest rate of 6% compounded monthly is equivalent to an effective interest rate of 6.17%. 6% compounded monthly is credited as 6%/12 = 0.005 every month. After one year, the initial capital is increased by the factor (1 + 0.005)^{12} ≈ 1.0617.

When the frequency of compounding is increased up to infinity the calculation will be:

The yield depends on the frequency of compounding:

Nominal annual rate | Frequency of compounding | ||||
---|---|---|---|---|---|

Semi-annual | Quarterly | Monthly | Daily | Continuous | |

1% | 1.003% | 1.004% | 1.005% | 1.005% | 1.005% |

5% | 5.063% | 5.095% | 5.116% | 5.127% | 5.127% |

10% | 10.250% | 10.381% | 10.471% | 10.516% | 10.517% |

15% | 15.563% | 15.865% | 16.075% | 16.180% | 16.183% |

20% | 21.000% | 21.551% | 21.939% | 22.134% | 22.140% |

30% | 32.250% | 33.547% | 34.489% | 34.969% | 34.986% |

40% | 44.000% | 46.410% | 48.213% | 49.150% | 49.182% |

50% | 56.250% | 60.181% | 63.209% | 64.816% | 64.872% |

The effective interest rate is a special case of the internal rate of return.

If the monthly interest rate j is known and remains constant throughout the year, the effective annual rate can be calculated as follows:

The annual percentage rate (APR) is calculated in the following way, where i is the interest rate for the period and n is the number of periods.

- APR =
*i*×*n*

### Effective interest rate (accountancy)[edit]

In accountancy the term effective interest rate is used to describe the rate used to calculate interest expense or income under the effective interest method. This is not the same as the effective annual rate, and is usually stated as an APR rate.

### See also[edit]

### Notes[edit]

### References[edit]

Need to be edited

### External links[edit]

## How do savings accounts work?

You're probably already familiar with how a checking account works—it's what most people use to make day-to-day financial transactions, like depositing paychecks, withdrawing money from an ATM, or setting up automatic debits to pay **how to calculate monthly interest rate on savings account** the cable bill each month.

But a checking account has another important partner in crime, and that's the savings account. A savings account, like a checking account, lets you keep your money in a safe place.

If used the right way, a savings account can help you curb impulsive, unnecessary spending and meet your long-term goals.

But unlike most checking accounts, you can also earn a small amount of interest each month, and if used the right way, a savings account can help you curb impulsive, unnecessary spending and meet your long-term goals.

Savings accounts are offered at most banks. Like checking accounts, savings accounts are FDIC-insured, meaning the bank insures your money up to $250,000. Basically if the bank goes out of business, you won't risk losing your money up to that amount—making a savings account a safer alternative to stashing your cash under your mattress.

The interest you earn on savings accounts can be compounded daily or monthly and rates vary among financial institutions.

Some savings accounts may require a minimum balance and most offer an interest rate to help your savings grow (even if only by a few pennies). How to calculate monthly interest rate on savings account interest you earn on savings accounts can be compounded daily or monthly and rates vary how to calculate monthly interest rate on savings account financial institutions, so be sure to ask your bank or credit union about its current rates before you enroll.

If you're already familiar with savings accounts, you probably know the interest rates are pretty low these days.

Why should I open up a savings account if my checking account is working just fine?

With such measly returns, you may be asking, “Why should I bother opening up a savings account if my checking account is working just fine?” If you’re looking for ways to save for the future, a savings account could be the missing piece you need to help you avoid overspending and stash away some cash.

By setting up automatic transfers from your checking account to your savings account, you can limit your temptation to spend all of your money at once—and you don’t have to think about it every time you want to save money.

Stephanie Halligan

Stephanie is the creator of The Empowered Dollar, a website dedicated to helping millennials fix their finances and find their stride in money and life. When she’s not blogging, Stephanie is designing financial education curriculum that teach millennials and low-income families about smart money south florida state college panther central https://www.tiaa.org/public/learn/personal-finance-101/how-do-savings-accounts-work

## How To Calculate Monthly Interest

Calculating interest month-by-month is an essential skill. You often see interest rates quoted as an annualized percentage—either an annual percentage *how to calculate monthly interest rate on savings account* (APY) or an annual percentage rate (APR)—but it’s helpful to know exactly how much that adds up to in dollars and cents. We commonly think in terms of monthly costs.

For example, you have monthly utility bills, food costs, or a car payment. Interest is also a monthly (if not daily) event, and those recurring interest calculations add up to big numbers over the course of a year. Whether you’re paying interest on a loan or earning interest in a savings account, the process of converting from an annual rate **how to calculate monthly interest rate on savings account** or APR) to *how to calculate monthly interest rate on savings account* monthly interest rate is the same.

### Monthly Interest Rate Calculation Example

To calculate a monthly interest rate, divide the annual rate by 12 to reflect the 12 months in the year. You'll need to convert from percentage to decimal format to complete these steps.

** Example:** Assume you have an APY or APR of 10%. What is your monthly interest rate, and how much would you pay how to calculate monthly interest rate on savings account earn on $2,000?

- Convert the annual rate from a percent to a decimal by dividing by 100: 10/100 = 0.10
- Now divide that number by 12 to get the monthly interest rate in decimal form: 0.10/12 = 0.0083
- To calculate the monthly interest on $2,000, multiply that number by the total amount: 0.0083 x $2,000 = $16.60 per month
- Convert the monthly rate in decimal format back to a percentage (by multiplying by 100): 0.0083 x 100 = 0.83%
- Your monthly interest rate is 0.83%

Want a spreadsheet with this example filled in for you? See the free Monthly Interest Example spreadsheet, and make a copy of the sheet to use with your own numbers. The example above is the simplest way to calculate monthly interest rates and costs *for a single month*.

You can calculate interest for months, days, years, or any other period. Whatever period you choose, the rate you use in calculations td bank bay parkway called the periodic interest rate. You’ll most often see rates quoted in terms of an annual rate, so you typically need to convert to whatever periodic rate matches your question or your financial product.

You can use the same interest rate calculation concept with other time periods:

- For a daily interest rate, divide the annual rate by 360 (or 365, depending on your bank).
- For a quarterly rate, divide the annual rate by four.
- For how to calculate monthly interest rate on savings account weekly rate, divide the annual rate by 52.

### Amortization

With many loans, your loan balance changes every month. For example, on auto, home, and personal loans, you gradually pay down your balance over time, and you usually end up with a lower balance each month.

That process is called amortization, and an amortization table helps you calculate (and shows you) exactly how much interest you pay every month.

Over time, your monthly interest costs decrease—and the amount that goes toward your loan balance *increases*.

### Home Loans and Credit Cards

Home loans can be complicated. It is smart to use an amortization schedule to understand your interest costs, but you may need to do extra work to figure out your actual rate. You can use our mortgage calculator (below) to see how your principal payment, interest charges, taxes, and insurance add up to your monthly mortgage payment.

You might know the annual percentage rate (APR) on your mortgage, and keep in mind that APR can contain additional costs besides interest charges (such as closing costs). Also, the rate on adjustable-rate mortgages can change.

With credit cards, you can add new charges and pay off debt numerous times throughout the month. All of that activity makes calculations more cumbersome, but it’s still worth knowing how your monthly interest adds up. In many cases, you can use an average daily balance, which is the sum of each day’s balance divided by the number of days in each month (and the finance charge is is pineapple good for you using the average daily balance). In other cases, your card issuer charges interest daily (so you'd want to calculate a daily interest rate—not a monthly rate).

### Interest Rates and APY

Be sure to use the interest *rate* in your calculations—not the annual percentage yield.

The APY accounts for compounding, which is the interest you earn as your account grows due to interest payments. APY will be higher than your actual rate unless the interest is compounded annually, so APY can provide an inaccurate result. That said, APY makes it easy to quickly find out how much you’ll earn annually on a savings account with no additions or withdrawals.

### Frequently Asked Questions (FAQs)

### What is a good interest rate for a credit card?

The average credit card interest rate was 20.25% in July 2021. You can expect to pay a few more points for store credit cards. Business and student credit cards will help you minimize your interest rate.

### What is the prime interest rate?

The prime interest rate is what banks charge their best customers. In other words, it's the lowest possible rate on a given day. This rate is typically available only to institutional customers. The average consumer pays the prime rate plus another rate based on their riskiness as a borrower.

### How do you reduce your credit card interest rate?

Credit card interest rates may be negotiable, but it's up to the card issuer. A card issuer is more likely to offer a lower rate if you have good credit habits like keeping up with monthly payments.