Savings Account Annual Interest Calculator
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Reviewed by Calculator Editorial Team
This savings account annual interest calculator helps you determine how much interest you'll earn on your savings over one year. Whether you're comparing different accounts or planning your finances, understanding your potential earnings is key to making informed decisions.
How to Use This Calculator
Using our savings account annual interest calculator is simple. Just follow these steps:
- Enter the principal amount (the initial deposit or balance in your savings account).
- Input the annual interest rate offered by your bank or financial institution.
- Select whether the interest rate is APR (Annual Percentage Rate) or APY (Annual Percentage Yield).
- Click the "Calculate" button to see your estimated annual interest.
The calculator will display your annual interest earnings and show a breakdown of how this interest is calculated. You can also view a chart that illustrates your savings growth over time.
Formula Explained
The calculation for annual interest is straightforward. The basic formula is:
Where:
- Principal is the initial amount of money you deposit into your savings account.
- Interest Rate is the percentage your bank pays on your savings each year.
For example, if you deposit $1,000 at a 2% annual interest rate, your annual interest would be $20.
Note: This calculator assumes the interest rate is compounded annually. For more complex scenarios with different compounding periods, additional calculations would be needed.
APR vs APY
When comparing savings accounts, you'll often see two types of interest rates: APR (Annual Percentage Rate) and APY (Annual Percentage Yield).
| Term | Definition | Example |
|---|---|---|
| APR | The simple annual interest rate your bank advertises. | If your bank offers a 2% APR, you'll earn $20 on $1,000. |
| APY | The effective annual interest rate, accounting for compounding. | If your bank offers a 2% APY, you'll earn slightly more than $20 on $1,000. |
Our calculator can handle both APR and APY calculations. Simply select the appropriate option when entering your interest rate.
Worked Example
Let's walk through a complete example to illustrate how the calculator works.
Suppose you have $5,000 in a savings account with a 1.5% annual interest rate. Here's how to calculate your annual interest:
- Enter $5,000 as the principal amount.
- Input 1.5 as the annual interest rate.
- Select APR (since we're using the simple rate).
- Click "Calculate".
The calculator will show that your annual interest is $75. This is calculated as:
Your total balance at the end of the year would be $5,075.