Savings accounts can earn interest on a regular basis.As the account balance increases, the interest earned increases as well.The future value of a savings account can be determined using the compound interest formula.You have to consider factors like how the interest is compounded over time and whether or not regular contributions are made in order to calculate interest on an account.The following steps can be used to calculate the compound interest on a personal savings account.
Step 1: Determine the amount of your principal balance.
The principal is the amount of money in a savings account.If you put $1,000 into a new savings account, your principal would be $1,000.The amount of money in the account as of the last statement is the principal.For an existing savings account, log into online banking, check your latest account statement, or contact your bank to determine the current amount in your account.
Step 2: Determine your annual interest rate.
The percentage of the account balance that is paid out in interest is the annual interest rate.The number is referred to as the annual percentage rate in financial documents.On your savings account agreement, it will be stated.A savings account might have an interest rate of 1.2 percent.The term annual percentage yield (APY) is used to refer to the annual rate in deposit accounts.The annual rate is the amount of interest paid each year, not the periodic rate.An annual rate of 1.2 percent is the periodic interest rate for an account with interest that compounds quarterly.You should use the annual rate in your calculations.If you want to calculate compound interest, you need your rate in decimal form.You can convert it by dividing the interest rate by 100.
Step 3: Take your compounding frequency and figure it out.
Standard savings accounts can be compounded monthly or quarterly.The account's interest is calculated and paid twelve or four times per year.Other accounts can be calculated daily, weekly, or annually.Determine how many times per year the interest is compounded by looking through your account agreement.You can use this number in your calculations.For annual compounding, use 1 once per year.Twice per year, use 2 for semiannual.For every quarter, use 4.For every month, use 12.52 is used for weekly.For daily use.
Step 4: The time period should be determined.
Determine how long a time period you will use.The amount of interest earned increases over time with the account balance.When performing calculations, express your time period in years.
Step 5: Decide if you will make regular contributions.
You can use compound interest to calculate the interest on your account.If you start a savings account with $1,000, you may want to save a small amount each month and add it to the account.The account value and amount of interest earned will be increased by regular contributions.Use the part of the article titled "Calculating Compound Interest with Regular Contributions" if you want to calculate interest for an account where you will be making regular contributions.
Step 6: The compound interest formula can be learned.
The compound interest formula is typically expressed as A.A is the final value of the account after interest is calculated.The principal is P.The annual interest rate is r.The compounding frequency is n.The time period is years.
Step 7: You should input your variables.
In the appropriate places, place your savings account information.It is important to format each one correctly.Make sure the time and the interest rate are in the same place.Imagine opening a savings account with a $2,000 deposit.The account will have an interest rate of 1.2 percent.You leave the money in the account for ten years.You can use the example savings account to complete your equation.
Step 8: The equation can be solved.
The first thing to do is to simplify the parts of the equation.For the example, equation, these calculations would result in the following:The addition should be solved in parentheses.For the example, this would give a value of $2,000.The exponent is calculated after that.The number is on the far right.You can calculate this by inputting the lower value in the example and then pressing the exponent button on your calculator.This would give a display style of A of $2,000.The result was rounded to five decimal places.Keep more places in your calculation for a more accurate answer.If you want to get your future account balance, you have to add the two remaining numbers.This is $2,254.58 in the example.Your $2,000 deposit will be worth $2,254.58 in ten years if you put it into an account.
Step 9: You have to calculate interest earned.
Your account's interest will increase over time.Your final account balance is A, minus your original amount or principal.This would be $2,254.58, or $2,200.Over the ten years, your account will earn $254.58 in interest.
Step 10: As necessary, adjust your calculation.
Now that you have calculated interest for this account, you should do the same for other accounts that may earn different interest or compound less frequently.You can shorten or increase your time period.Changing these variables will allow you to see what combinations will give you the best return on your principal.
Step 11: Understand the formula.
Your future value of an account earning compound interest that is also regularly increased with additional funds is shown by the regular contributions formula.It is the same formula that is used for calculating compound interest on a principal amount.The formula is written out as follows.The formula is for regular contributions made at the end of the period in question.If you want to calculate interest when payments are made at the beginning, you have to add the figure.The formula only works if the payment and compounding frequencies are the same.This calculation will not be accurate if you make monthly contributions.
Step 12: You need to fill out an equation.
Imagine that you deposited $2,000 into your new savings account.The annual interest rate is 1.2 percent.You will keep the money in the account for ten years.$100 will be added to the account at the end of each month for the next 10 years.The completed equation would be: A$2,000(1+0.01212)1210+$100.
Step 13: Do the numbers.
The principal and payment will be solved the same way.Divide the annual interest rate, r, by n inside the parentheses when you simplify the figures containing the compounding frequency.If you use the example equation, it will leave you with: A$2,000(1+120+$100)Subtract the 1 in parentheses from the yield.Multiply and divide the two parts separately.Divide the payments side by the decimal under the principal in parentheses.Add the final two numbers.Your result is the value of the account after a certain time period.This is 14,997.86.If you start with $2,000 in principal and add $100 each month, your 1.2 percent annual interest-earning account will be worth more than $15,000 in ten years.
Step 14: You have to calculate the interest earned.
The value of the account after ten years will be the amount of money you paid into it.Add up the money you paid to find this number.This is the sum of your contributions and your principal.In the example, this would be $2,000 plus $100 per month, 12 months per year, or 10 years.The paid-in amount is $14,000.The final value of the account is minus the amount you paid in it.Over the ten-year period, your account will earn almost $1,000 in interest.