Savings+account+interest+calculator
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Reviewed by Calculator Editorial Team
This savings account interest calculator helps you determine how much interest you'll earn on your savings over time. Whether you're saving for a short-term goal or a long-term investment, understanding how compound interest works can help you make smarter financial decisions.
How Savings Account Interest Works
Savings accounts are a common way to grow your money over time. When you deposit money into a savings account, the bank or financial institution earns interest on that money. The interest is typically calculated on a daily, monthly, or annual basis, depending on the account terms.
Key Terms
- Principal (P): The initial amount of money you deposit into the savings account.
- Interest Rate (r): The annual percentage rate (APR) that the bank pays on your savings.
- Time (t): The number of years the money will be in the savings account.
- Compound Frequency (n): How often the interest is calculated and added to the principal (e.g., annually, monthly).
The interest earned on your savings can be calculated in two ways: simple interest and compound interest. Most savings accounts use compound interest, which means that interest is earned on both the initial principal and the accumulated interest from previous periods.
The Formula
The future value (FV) of your savings account with compound interest can be calculated using the following formula:
Compound Interest Formula
FV = P × (1 + r/n)^(n×t)
Where:
- FV = Future Value
- P = Principal amount
- r = Annual interest rate (in decimal)
- n = Number of times interest is compounded per year
- t = Time the money is invested for (in years)
This formula shows how your principal grows over time with compound interest. The more frequently interest is compounded, the more your money will grow.
Worked Example
Let's say you deposit $1,000 into a savings account with an annual interest rate of 5%, compounded monthly. How much will you have after 5 years?
Example Calculation
P = $1,000
r = 5% = 0.05
n = 12 (monthly compounding)
t = 5 years
FV = 1000 × (1 + 0.05/12)^(12×5)
FV = $1,000 × (1.004167)^60
FV ≈ $1,283.36
After 5 years, you would have approximately $1,283.36 in your savings account, earning $283.36 in interest.
| Year | Starting Balance | Interest Earned | Ending Balance |
|---|---|---|---|
| 1 | $1,000.00 | $41.67 | $1,041.67 |
| 2 | $1,041.67 | $43.40 | $1,085.07 |
| 3 | $1,085.07 | $45.19 | $1,130.26 |
| 4 | $1,130.26 | $47.03 | $1,177.29 |
| 5 | $1,177.29 | $48.93 | $1,226.22 |
Frequently Asked Questions
How is savings account interest calculated?
Savings account interest is typically calculated using the compound interest formula, which takes into account the principal amount, interest rate, compounding frequency, and time period.
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal amount, while compound interest is calculated on the principal plus any accumulated interest from previous periods. Compound interest typically results in higher earnings over time.
How often should interest be compounded for maximum growth?
The more frequently interest is compounded, the more your money will grow. Monthly compounding is common in savings accounts and provides a good balance between growth and convenience.
Can I withdraw money from a savings account without penalty?
Most savings accounts allow withdrawals without penalty, but some may have restrictions or fees. Check your account terms for specific details.