Having a savings account or investment gives you the opportunity for your money to earn through interest rates. This is called compound interest or compounding interest. You can earn money not just from your principal amount but also from your accumulated interest from past periods.
To find out how much you can earn from compounding interest, our interest earned calculator is a helpful tool to use. This will help you determine:
How much money you can save with regular deposits
How much compound interest can help boost your savings
Give you a projection how much you'll have saved based on the number of years you have the account
To use our Interest Earned Calculator, simply put in financial details such as your:
Initial deposit: This is the original balance deposited into your account.
The amount of your regular deposit: The amount you will regularly save.
Deposit frequency: The frequency of your deposit into your account, it can be daily, weekly, fortnightly, monthly, or annually.
Number of years: This is how long you plan to keep the account.
Annual interest rate: The interest rate of your savings account or investment.
Interest Earned is calculated using this formula:
Where
A = ending balance
P = initial deposit
r = annual interest rate, as a decimal rather than percent (also called APR)
n = number of time interest is compounded per time period (nt)
t = time period
To use as an example, let’s say you have an initial deposit of $10,000 and an annual interest rate of 5% for over 5 years, with interest compounding on a monthly basis.
A = ending balance
P = $10,000
r = 5% or 0.05
n = 12
nt = 1
So using the formula, it will be:
A = P(1 + r/n)^{nt}
A = 10,000 x (1 + 0.05/12)^{(12)(5)}
A = 10,000 x (1 + 0.004166667)^{(60)}
A = $12,833.59
You’ll have $12,833.59 by the end of the 5-year term. The more money you regularly deposit and the longer you save, the more you can earn on interest. So, it’s recommended to save regularly to take advantage of compound interest and high interest savings accounts.
If you want a quicker and easier way in computing how much you can earn from interest, you can use our free Interest Earned Calculator.
Compound interest means you can earn not only from your initial deposit but also on previous interest that was added to your investment or savings. Basically, it gives you the benefit to earn interest on top of the interest you already earned.
Here is an example of how you can earn through compounded interest. Say your initial money deposited is $10,000 with a 4% interest rate per annum, here's what it will look like through the 10 year period.
$10,000 with 4% annual rate with no monthly deposit
End Year | Total Interest Earned | Total Savings |
---|---|---|
Year 1 | $407 | $10,407 |
Year 2 | $831 | $10,831 |
Year 3 | $1,273 | $11,273 |
Year 4 | $1,732 | $11,732 |
Year 5 | $2,210 | $12,210 |
Year 6 | $2,707 | $12,707 |
Year 7 | $3,225 | $13,225 |
Year 8 | $3,764 | $13,764 |
Year 9 | $4,325 | $14,325 |
Year 10 | $4,908 | $14,908 |
The longer you save, the more money you can earn through interest with the power of compounding.
Here is another example if you decide to do a regular deposit of $50 per month.
$10,000 with 4% annual rate with $50 regular monthly deposit
End Year | Total Interest Earned | Total Savings |
---|---|---|
Year 1 | $419 | $11,019 |
Year 2 | $879 | $12,079 |
Year 3 | $1,382 | $13,182 |
Year 4 | $1,930 | $14,330 |
Year 5 | $2,525 | $15,525 |
Year 6 | $3,169 | $16,769 |
Year 7 | $3,863 | $18,063 |
Year 8 | $4,610 | $19,410 |
Year 9 | $5,412 | $20,812 |
Year 10 | $6,271 | $22,271 |
Doing a regular deposit on your savings or investment that offers compounding interest can really help you take advantage of the time, so you can easily increase your savings.
Interest earned is not an expense since this is the money you earn from your savings or investment, unlike interest expense where your lender charges you for borrowing money.
To take advantage of earning through interest, you can get savings or term deposit accounts that offers this. You can ask your financial institution about the products they offer.
Interest earned is money earned on the amount of money you keep in an account. On the other hand, interest paid is money paid for borrowing money from a lender for instance when you are buying a car or a house.
Most savings accounts will offer the opportunity to earn interest. This type of account can have a simple interest earnt, calculated based on the principal amount deposited in your account. Compound interest is based on the principal amount and the interest earned from past periods.
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of 9 July 2024.
^The addition of offset sub-account means your comparison rate will change.
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