Savings Account Interest Earned Calculator
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Reviewed by Calculator Editorial Team
Calculate how much interest you'll earn on your savings account with our free savings account interest earned calculator. Simply enter your principal amount, annual interest rate, and time period to see your potential earnings.
How to Use This Calculator
Using our savings account interest earned calculator is simple. Follow these steps:
- Enter the principal amount (the initial deposit or balance in your savings account).
- Input the annual interest rate (APR) offered by your bank or financial institution.
- Select the compounding frequency (how often interest is calculated and added to your account).
- Enter the time period for which you want to calculate interest (in years).
- Click the "Calculate" button to see your results.
The calculator will display the total interest earned and the future value of your investment. You can also view a chart showing your balance growth over time.
Formula Explained
The savings account interest earned calculator uses the compound interest formula:
A = P(1 + r/n)nt
Where:
- A = the future value of the investment/loan, including interest
- P = the principal investment amount (the initial deposit or loan amount)
- r = the annual interest rate (decimal)
- n = the number of times that interest is compounded per year
- t = the time the money is invested or borrowed for, in years
The interest earned is calculated by subtracting the principal from the future value (A - P).
Note: This calculator assumes the interest rate remains constant throughout the investment period. Real-world interest rates may change over time.
Worked Examples
Let's look at two examples to understand how the calculator works.
Example 1: Annual Compounding
Suppose you deposit $1,000 in a savings account with an annual interest rate of 3% compounded annually. You want to know how much you'll have after 5 years.
A = 1000(1 + 0.03/1)1×5 = 1000(1.03)5 ≈ $1,159.27
Interest earned = $1,159.27 - $1,000 = $159.27
Example 2: Quarterly Compounding
Now let's consider the same $1,000 deposit with a 3% annual interest rate, but this time compounded quarterly over 5 years.
A = 1000(1 + 0.03/4)4×5 = 1000(1.0075)20 ≈ $1,162.47
Interest earned = $1,162.47 - $1,000 = $162.47
Notice that quarterly compounding results in slightly more interest earned than annual compounding for the same principal and interest rate.
Comparison of Compounding Frequencies
Here's a comparison of how different compounding frequencies affect your savings:
| Compounding Frequency | Future Value (5 years) | Interest Earned |
|---|---|---|
| Annually | $1,159.27 | $159.27 |
| Semi-annually | $1,160.69 | $160.69 |
| Quarterly | $1,162.47 | $162.47 |
| Monthly | $1,163.67 | $163.67 |
| Daily | $1,164.09 | $164.09 |
As you can see, more frequent compounding generally results in slightly higher returns, though the difference becomes less significant over longer periods.
Frequently Asked Questions
- What is the difference between APR and APY?
- APR (Annual Percentage Rate) is the simple annual interest rate, while APY (Annual Percentage Yield) is the effective annual rate that takes into account compounding. APY is generally higher than APR for the same interest rate.
- How often should interest be compounded?
- The more frequently interest is compounded, the higher your returns will be. Most savings accounts offer daily compounding, which provides the highest returns.
- Is it better to leave money in a savings account or invest it?
- Savings accounts typically offer lower interest rates than investment options. If you need quick access to your money, a savings account may be appropriate. For longer-term goals, investing may offer better returns.
- How does inflation affect savings account interest?
- Inflation can erode the purchasing power of your savings. If the interest rate on your savings account is lower than the inflation rate, your money will lose value over time.
- Can I withdraw money from a savings account without penalty?
- Most savings accounts allow unlimited withdrawals without penalty. However, some high-yield savings accounts may have restrictions or require notice before certain withdrawals.