How to calculate interest on your savings SaturdayMotivation
As you build up your savings, it’s helpful to learn how to calculate interest. Doing so allows you to plan for important goals and understand your progress towards those goals. It’s relatively easy to calculate the interest you earn, especially if you use free spreadsheets or online calculators., interest is the cost of using somebody else’s money. When you borrow money, you pay interest. When you lend money, you earn interest.
Banks do the lending for you: They use your money to offer loans to other customers and make other investments, and they pass a portion of that revenue to you in the form of interest. This calculation works when your interest rate is quoted as annual percentage yield. Most banks advertise APY: The number looks better than “the interest rate” because it’s a higher number, and it’s simpler because it takes compounding into effect. However, you might only know the interest “rate”—and not know the APY.
More frequent periodic interest payments into the account, instead of one annual payment. For example, your bank might pay interest monthly.With the same example above, we’ll use the formula for compound interest to calculate the ending amount :If it’s been a while since math class, the caret is for exponentiation, which means a number is raised to the power of another. For example, “x^3” means x cubed .
To make your own spreadsheet, start by entering the following in any cell to figure your earnings using simple interest:That formula asks for the interest rate, number of periods, periodic payment , future value , and an option for the beginning or end of period.
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