How to Calculate Savings Account Income
Savings accounts are used by millions of consumers to accumulate money in case of emergency or for a special purchase. Each month or quarter, banks send out statements detailing the activity on savings accounts, and with each statement, there is a line that informs the account holder how much interest has been earned. It is also possible for customers to estimate the amount of interest they will receive in a given period of time without relying on the statement.
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Things You'll Need
- Documents that give details about the interest rate of the account
- Paper and pencil or calculator
Instructions
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Calculating Interest Earned in 1 Year
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1
Determine the annual rate of interest on the account. This should appear on a monthly statement or in the documents received at account opening. For example, the annual rate is 4 percent.
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2
Divide the number of the percentage by the number 100. The annual rate is .04.
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3
Multiply the result determined in Step 2 by the balance in the account. For example, $1,000 x .04 = $40 annual interest.
Calculating Daily, Monthly and Quarterly Interest
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4
Divide the amount of annual interest by the number of days in a year to obtain the daily interest. For example, $40 annual interest / 365 days in a year = 11 cents daily interest.
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5
Divide the amount of annual interest by the number of months in a year to obtain the monthly interest. In our example, $40 annual interest / 12 months in a year = $3.33 monthly interest.
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6
Divide the amount of annual interest by the number of quarters in a year to obtain the quarterly interest: $40 annual interest / 4 quarters in a year = $10 quarterly interest.
Using Accrued Interest
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7
Calculate the amount of interest earned in 1 year. The annual percentage rate = 5.25 percent, or .0525. There is a $3,000 deposit. So, $3,000 x .0525 = $157.50 annual interest.
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8
Determine how often interest is accrued. This means how often the account earns interest. This is almost always daily.
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9
Calculate the daily interest or the amount of interest equal to one unit of accrual. For example, if interest is accrued monthly, you would determine the monthly interest in this step. However, it is very rare that an account does not accrue interest daily. The example here: $157.50 annual interest / 365 days = 43 cents interest accrued daily.
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10
Determine how often interest is credited. This means how often the accrued interest is added to the balance. Typically, this is monthly.
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11
Count how many days are in the period for interest crediting. Multiply the daily interest by this number of days. For example, 43 cents interest accrued daily, credited monthly. Calculate 43 cents x 30 days in the month of April = $12.90 interest earned in the month of April.
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Tips & Warnings
For an extra degree of accuracy, carry the decimal out three or four digits rather than two. For example, .0122 rather than .01.
The APY or Annual Percentage Yield is a measure of how much interest can be earned in a year's time, taking compounding of interest into account. For the calculations performed in this article, it is crucial to use the annual rate and not the APY.
