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Home >> Accounts >> Savings Accounts
Calculating Interest
Mathmatically, how do I figure out how much interest I will make given a specific total and interest rate?
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 There are three variables involved in the calculation of interest. The general formula is I = A*R*T, in which I is the interest amount, A is the amount on which interest is being paid, R is the interest rate, and T is the time period for which interest is to be calculated, expressed as a fraction of a year.
To approximate the interest to be earned, multiply the amount of your deposit by the interest rate expressed as a decimal (5% is converted to 0.05, for example). Then multiply the result by the number of days in the interest period, divided by 365. Actual interest calculations will vary from this estimate due to rounding and possibly compounding of interest (adding earned interest to the deposit amount periodically). If the amount deposited is $1,000 and the rate is 5%, 31 days' interest would be calculated as $1,000 x 0.05 x 31/365, or $4.25. Another, perhaps more interesting, way to estimate interest income is to use one of the Savings Calculators on our Banking Tools page.
Published on BankingQuestions.com 5/07/09
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