How to Calculate Savings Account Interest

Understanding how your savings account earns interest makes it way easier to plan for goals like an emergency fund, a trip, or a future down payment.

The good news: you don’t need to be a math whiz—just a couple of simple formulas and you’re set.

First, what is savings account interest?

When you put money in a savings account, your bank or financial institution pays you interest as a percentage of your balance.

You’ll usually see that percentage shown as:

• Annual interest rate or Annual Percentage Yield (APY)

• For example: 3% per year

Two key ideas:

1. Principal – the starting amount you deposit (say, $5,000).

2. Time – how long you leave the money in the account (months or years).

Most modern savings accounts use compound interest, which means:

You earn interest on your original money and on the interest that’s already been added.

That’s what helps your savings grow faster over time compared to simple interest.

KOHO High Interest Savings

If you’re looking to actually put this into practice, KOHO’s High Interest Savings lets you:

• Earn a competitive high interest rate on your savings

• Avoid traditional monthly account fees

• Track your spending to watch your savings grow

The basic interest formula (no compounding)

If you want a simple estimate for a short period of time or just to sanity-check your numbers, you can start with the simple interest formula:

Interest = Principal × Rate × Time

Where:

• Principal (P) = how much you deposit

• Rate (r) = annual interest rate (as a decimal)

• Time (t) = time in years

Example (simple estimate)

You deposit $5,000 in a savings account that pays 3% per year, and you leave it there for 1 year.

1. Convert 3% to decimal:

   • 3% = 0.03

2. Plug into the formula:

   • Interest = 5,000 × 0.03 × 1

   • Interest = $150

So with a simple estimate, you’d earn about $150 in interest in one year.

This is a good quick check, but most real savings accounts use compounding, so your actual interest will be slightly higher.

How compound interest works

With compound interest, your bank calculates interest regularly (daily, monthly, etc.) and adds it to your balance. Then the next interest calculation is based on this new, slightly higher balance.

The general compound interest formula is:

A = P × (1 + r / n)^(n × t)

Where:

• A = the final amount (your ending balance)

• P = principal (starting amount)

• r = annual interest rate (as a decimal)

• n = number of compounding periods per year

  • Monthly compounding → n = 12

  • Daily compounding → n = 365 (or 366 in a leap year)

• t = time in years

Your interest earned is then:

Interest = A − P

Step-by-step example with compounding

Let’s use the same example, but now assume the account compounds monthly.

• Principal (P) = $5,000

• Annual rate (r) = 3% = 0.03

• Compounding monthly → n = 12

• Time (t) = 1 year

1. Plug into the formula

A = 5,000 × (1 + 0.03 / 12)^(12 × 1)

Break it down:

• 0.03 / 12 = 0.0025 (monthly rate)

• 1 + 0.0025 = 1.0025

• 1.0025^12 ≈ 1.0304 (rounded)

So:

A ≈ 5,000 × 1.0304 = $5,152.08 (rounded)

2. Find the interest

Interest = A − P = 5,152.08 − 5,000 = $152.08

So with monthly compounding, you’d earn about $152.08 in interest over one year—slightly more than the $150 from the simple estimate.

How to calculate your own savings interest

You can follow these steps with your own account details.

Step 1: Find your interest rate and compounding frequency

Check your bank or financial app for:

• The annual interest rate (e.g., 3%)

• How often interest is compounded (daily, monthly, etc.)

If you’re using KOHO High Interest Savings, you can see your current rate directly in the app.

Step 2: Convert the rate to a decimal

• Divide the percentage by 100

  • 3% → 0.03

  • 4.5% → 0.045

Step 3: Choose the right formula

• For a quick estimate → use simple interest:

  • Interest = P × r × t

• For a more accurate number → use compound interest:

  • A = P × (1 + r / n)^(n × t)

  • Interest = A − P

Step 4: Plug in your numbers

Use your:

• Principal (how much you’re planning to save)

• Rate (as a decimal)

• Time (in years)

• Compounding periods per year (n)

If you don’t want to do it by hand, you can use a basic calculator app or an online compound interest calculator—just make sure you enter the compounding frequency correctly.

What if you add money regularly?

The examples above assume you deposit money once and leave it alone.

In real life, many people:

• Start with a small balance

• Add to their savings every payday or every month

The math for regular contributions is a bit more complex, but the key takeaway is:

The earlier you start and the more consistently you contribute, the more compound interest has a chance to work in your favour.

Even if you’re not ready for the full formula, you can still:

• Use a calculator that lets you enter monthly contributions

• Experiment with different amounts to see how it affects your future balance

Bringing it all together

Calculating savings account interest comes down to a few simple pieces: your starting balance, your rate, how long you’re saving, and whether interest is compounded.

Once you understand those, you can quickly estimate how much your money will grow—and make more informed choices about where to keep it.