How to Calculate Interest on a Checking Account
There are two types of checking accounts--interest-bearing and non-interest-bearing. An interest-bearing checking account earns interest on the balance of funds deposited. A non-interest-bearing checking account merely holds the account balance for the consumer and the balance does not collect interest. Obviously, it is more desirable to have an interest-bearing checking account. To help maintain your interest-bearing account, learn the formula for how to calculate interest on a checking account.
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Instructions
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Ask your bank, or check your checking account statement, to find out if your checking account's interest is simple interest or compound interest. Also, find out the interest rate.
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Take your balance and multiply it by your interest rate to find out how much interest you will earn, if your interest earned is simple interest. For example, a $1,000 balance with 5 percent simple interest (1,000 x .05) will earn $50 interest for that time period (usually calculated monthly).
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With a calculator, calculate your compound interest. The formula is PV(R+1)^n. PV is the present value of the account. R is the interest rate and N is the number of investment periods. For one year, place 1 in the "n" variable. For one month, place 1/12th in the "n" variable. To calculate how much that same $1,000 would earn at 5 percent compound interest per month, insert the numbers into the formula 1000(1.05)^(1/12) to get $1,051.16. It is preferable to have compound interest as opposed to simple interest on your account.
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Tips & Warnings
Use an online calculator, such as the one found in the Resources Section at MoneyChimp.com, to help calculate your compound interest over a longer time period. Note how compound interest can help you increase your savings dramatically over time.
Make sure you understand the terms of your checking account. Some compound interest daily, while others compound interest monthly. Additionally, average balances of a certain amount may need to be maintained in order to receive the interest benefit.
