How to Calculate Interest on Your Savings Account

May 6, 2024

Learn how to calculate interest on your savings accounts using easy-to-follow steps and get the most out of your money. Get started with Neo Financial™ today!

Learn how to calculate interest on your savings accounts using easy-to-follow steps and get the most out of your money. Get started with Neo Financial™ today!

Estimate Your Money Growth With a High-Interest Savings Account Calculator

Earning interest is one of the perks of opening a high-interest savings account (HISA). It can help grow your savings faster and help you reach your goals. When planning your finances and creating a budget, it can be helpful to understand how much interest you might earn. Learning how to calculate interest on your savings account can also help you compare accounts and interest rates and find the best HISA for your needs.

Use this helpful guide to learn how you can estimate your money growth and better understand how interest works with a HISA calculator.

How interest works with a HISA

Before calculating your potential interest earnings, it’s helpful to understand how interest works with a high-interest savings account. You earn compound interest based on your total account balance, which includes your deposits and interest earned from previous periods. You can calculate the interest you receive based on the financial provider’s interest rate and compounding frequency.

With a HISA, you can deposit an initial principal balance and let that accumulate interest over time. You can also make regular contributions to your HISA throughout the year, which will help you generate more interest earnings.

Quick definitions

Let’s understand the different terms used in a HISA calculator.

Initial amount

The amount you deposit into your savings account is your principal. For example, if you open a HISA and deposit $100 into the account, the $100 is your principal. Your interest earnings and money growth are based on the interest rate and how much money you deposit in your account.

Monthly deposits

Monthly deposits are regular contributions to your HISA. For example, if you consistently deposit $10 into your savings account at the start of each month, your monthly deposits total $10. You may see monthly contributions on a savings calculator, but you can choose any contribution frequency that fits your financial situation.

If you want to make biweekly contributions based on the frequency of your paycheques, you can plan that into your budget. Then, using any of the various HISA calculators available online, you can calculate the monthly total of your ongoing contributions to estimate your money growth.

Annual interest

The annual interest rate is the percentage of interest you earn in one year. You receive interest payments based on the interest rate and the compounding frequency. You may see the annual percentage rate and annual percentage yield when looking at HISAs. The annual percentage rate considers only the simple interest. The annual percentage yield considers compounding interest and is a more accurate depiction of how much interest you’ll earn.

Number of years

The number of years refers to how many years your funds will grow. If you keep your money in a HISA for five years, the number of years would be five.

Compounding frequency

Compounding frequency is how often a financial provider calculates interest on the money you've saved in your account. Let’s say you earn interest compounded monthly. It means the financial institution calculates interest based on how much money is in your account every month, or 12 times a year. Compounding frequency can be different from how often the financial provider actually pays out the interest you’ve accumulated. Some HISA calculators may ask for both the compounding frequency and the number of years to determine the growth potential of your funds based on how long you plan on keeping your money in the account and how often you receive interest from the financial provider.

How to compare different savings account options

Comparing HISAs can help you find the best choice for your situation and maximize your money growth. A HISA calculator can help compare different options to find the best rates. The calculator can estimate how much growth your money will experience over time based on the interest rate and compounding frequency.

There are many factors to consider when choosing a HISA. Depending on your personal situation you may prioritize accessibility, low or no monthly fees, no minimum balance requirements, and other features to help maximize your savings. If your main goal is to earn a high interest rate, you can determine which financial institution gives you the most earnings by plugging in different numbers into a HISA calculator for the interest rate, compounding frequency, monthly contributions, and the number of years. The higher the interest rate and the more frequent the compounding payments, the faster your money grows.

How much should I save each month?

There’s no right or wrong answer. You can create a goal for how much you want to add to your monthly savings and a plan for how you’ll reach that goal. Creating a budget may be a good way to help determine how much you can afford to save right now based on your earnings and expenses. If you have debts, you may not be able to save as much as you’d like, or you may not want to save a lot until you can increase your earnings.

Whatever the case, practicing discipline and being consistent with your savings can be helpful for developing good financial habits. You can use a high-interest savings calculator to estimate how much interest earnings you can get based on your contributions to help plan your budget and how much you want to save.

Many experts suggest prioritizing your emergency savings when you’re just starting to build your savings. Your emergency savings can be a safety net and personal insurance policy that can help you pay for unexpected expenses if you lose your job or run into trouble. For example, if you suddenly have medical bills or need to repair a broken fence in the backyard, you have the option of using your emergency savings to cover the cost instead of taking a loan or using your regular savings.

You can decide how much you want to keep in your emergency savings. Experts recommend saving at least three to six months worth of expenses. This ensures you can continue to pay your bills, debts, and other necessities if you lose your income. Determine how much your monthly expenses total and focus on gradually reaching that number in your emergency savings.

The bottom line

A HISA calculator can help you estimate your interest earnings and which interest rate best fits your situation to achieve your goals. For example, to save $2,000 in two years, you can estimate the interest rate, initial deposit, and monthly contributions required to reach that goal.

You can also use this information to assess your financial health and determine whether you have enough resources to afford your current and future lifestyle. If you use the calculator to create your savings plan and find it difficult to stick with, consider cutting expenses or adjusting your budget. If you can easily follow your calculated savings plan, consider gradually increasing your monthly contributions.

Your savings will grow based on how much you contribute to the account, the financial provider’s interest rate, compounding frequency, and how long you leave your money in the account. The higher the interest rate, the faster the savings account grows. The more often the compounding frequency, the more frequently your account balance increases. An account that compounds daily or monthly grows faster than one that compounds annually.

The Neo High-Interest Savings account has a 4.00% interest rate¹ on all deposits, which is one of the highest interest rates among financial providers in Canada². With a Neo High-Interest Savings account, your savings may grow faster than many traditional savings accounts.

There are no monthly fees or minimum balances. All qualified account holders³ can open a Neo High-Interest Savings account and deposit money. You can access your funds, make transfers, and set targets for different savings goals. You can also monitor your goal progress in the Neo app to help keep yourself accountable and help build good habits.

Learn more about the Neo High-Interest Savings account and get started today.

This article provides information and is not intended to provide any personalized tax, investment, financial, or legal advice. You are encouraged to seek professional advice before making financial decisions.

¹ Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.

² Based on research of high-interest savings accounts, comparing and limited to: BMO, CIBC, Scotiabank, TD Bank, RBC, Simplii Financial, and Tangerine. Research conducted by Neo Financial and based on data taken from public websites on January 3, 2024. Research excludes welcome offers.

³ Account only available to Canadian residents. You must be at least 13 years of age if you reside outside of Quebec; if you reside in Quebec you must be at least 14 years of age.

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