Principles
of Savings
Interest calculations
Simple interest calculation
Dollar Amount x Interest rate x
Length of Time (in years) = Amount
Earned
Example: If you had $100
in a savings account that paid 6%
simple interest, during the first
year you would earn $6 in interest.
$100 x 0.06 x 1 = $6
At the end of two years you would
have earned $12. The account would
continue to grow at a rate of $6
per year, despite the accumulated
interest.
Compound
interest calculation
Interest is paid on original amount of deposit, plus any interest earned.
(Original $ Amount + Earned Interest) x Interest Rate x Length of Time =
Amount Earned
Example: If you had $100
in a savings account that paid 6%
interest compounded annually, the
first year you would earn $6 in interest.
$100 x 0.06 x 1 = $6
$100 + $6 = $106
With compound interest, the second
year you would earn $6.36 in interest.
The calculation the second year
would look like this:
$106 x 0.06 x 1 = $6.36
$106 + 6.36 = $112.36
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