As you start considering opening of savings account, the first question that comes to your mind is how much money you will earn at the end of certain period of time. Based on this information you decide whether it is feasible to invest in savings account or it is better to consider some other investment opportunities.
A tool that helps you to calculate amount of your savings account earnings is called savings account calculator. Usually you can use it for free online, because many sites provide it for free in the Internet. You can find one here:
Savings account calculator is pretty easy to use. You need to input few variables and you get the full picture of what you will earn in the future. These are variables usually are amount of investment, interest rate, compound interest, years of investment, yearly / monthly / daily APY.
When you start using savings account calculator, there are several concepts that you should know what they mean:
Interest rate – this is an interest rate for the savings account. It is a standard input variable for savings account calculator. Different investment instruments provide different interest rates that depend on the riskiness of an investment. In the case of savings account interest rate varies from 0.5% to 4.5%;
Compounding – compounding means earning interest on previously earned interest. In other words, if you invested $1,000 in savings account at 1% monthly interest rate and compounded monthly, this means that after one month you will have $1,010 on your account and the for the next month interest rate will be calculated not from $1,000, but $1,010. This is important, because if there is no compounding, then it means that for some of your money, you are not earning interest. The more often compounding occurs, the better. Monthly compounding is good, but daily compounding is much better. You should know that there is also continuous compounding; however banks rarely use such method. So before you actually open a savings account and deposit money there, you should check with the financial institution what kind of compounding it provides;
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