How to Calculate an Interest Bearing Account
No matter how much or how little money you have to invest, it is important to get as much for your money as you can. Placing your emergency funds and everyday spending cash in an interest-bearing checking, savings or money market account is one of the best ways to get every penny you have coming. But in order to get the most for your money, you need to calculate the interest you will receive on your invested funds.
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Instructions
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Pull out the financial disclosure documents you received when you open your account. Read through the fine print to find the annual percentage yield (APY) of the account.
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Check your bank statement to determine how much money you have in the account. Calculate the amount of interest you will earn in a year by multiplying the interest rate times the amount you have on deposit. For instance, if your money market account is paying a 4 percent interest rate and your balance is $10,000, your annual interest would be $400.
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Calculate the daily amount of interest by dividing the total annual interest by the 365 days in the year. Then multiply that daily amount of interest by the number of days in the month. This is the amount of interest you should earn for the month. If the amount invested is $10,000 and the interest rate is 4 percent, the amount of daily interest would be just over $1.09. For a month with 30 days, the monthly interest works out to approximately $32.87.
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Add the amount of interest for the month to your original balance and use it to calculate your interest for the following month. For instance, if you earned $70 on your $10,000 for the month, you would add that $70 to the starting balance for a total of $10,070. Multiply that $10,070 by the 4 percent interest rate, then divide the result by 365 to get the daily amount of interest. Multiply the daily interest amount by the number of days in the month to get the interest amount for that month.
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Continue to add the amount of accumulated interest for each month to the previous month's total and calculate the monthly interest in the same manner. This will give you a true picture of the amount of interest you can expect to earn on your money. The power of compound interest means that investing even relatively small sums for long periods of time can result in significant earnings.
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References
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