How to Calculate Yearly Interest on a Savings Account

by Mark Kennan

Though savings accounts typically do not pay very high interest rates, when the stock market is erratic or you need quick access to your money, a savings account may provide a safe harbor. The annual interest earned on your account depends on not only the account balance and the interest rate, but also how often interest compounds. The more often during the year the accrued interest gets added to the account, or compounded, the higher the effective interest rate will be.

1. Divide the annual interest percent by 100 to find the annual interest rate. For example, if your savings account pays an annual interest rate of 1.46 percent, divide 1.46 by 100 to get 0.0146.

2. Divide the annual interest rate by the number of times interest compounds on your savings account. For this example, if interest compounds daily, divide 0.0146 by 365 to get a periodic rate of 0.00004.

3. Add 1 to the savings account periodic rate. In this example, add 1 to 0.00004 to get 1.00004.

4. Raise the result to the power of the number of times the savings account compounds interest per year. In this example, raise 1.00004 to the 365th power to get 1.014706804.

5. Subtract 1 from the result to find the annual percentage yield. In this example, subtract 1 from 1.014706804 to get 0.014706804.

6. Multiply the starting balance of your savings account by the annual percentage yield to find the yearly interest on the savings account. In this example, if your starting balance equals $400, multiply 0.014706804 by $400 to find your savings account earns $5.88 per year.

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