# Calculating return on savings account

Discussion in 'Finance & Banking' started by damo12, 15th Oct, 2008.

1. ### damo12New Member

Joined:
15th Oct, 2008
Posts:
1
Location:
melbourne
Does anyone know how to calculate the return on a savings account? e.g. if I have \$500 in a savings account at the start of the month and maintain this balance for the month and the account pays 6.50% compound interest p.a, with interest calculated daily and paid monthly. What will be the balance in my account at the end of the month?

PS: there are no minimum balance requirements or account keeping fees.

2. ### Simon HampelCo-founderStaff Member

Joined:
9th Jun, 2005
Posts:
4,774
Location:
Sydney, Australia
1. work out the daily rate of interest (interest rate divided by 365)
2. work out the amount of interest paid for the month (daily rate multiplied by number of days in the month)
3. the interest paid for the month gets added to the balance at the end of the month
4. the next month uses this new balance for calculating the amount of interest

ie for a 30 day month: interest earned = 500 * 0.065 * 30 / 365 = \$2.67

At the end of that month, your balance should be \$502.67

for the following 31 day month: interest earned = 502.67 * 0.065 * 31 / 365 = \$2.78

At the end of this second month, your balance should be \$505.45

... etc.