Earning interest in a savings account helps your money grow over time. Let’s break down how to calculate it and maximize your earnings!

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1. Simple Interest Formula

Simple interest provides a quick estimate of your earnings:

Formula:
Interest = P × R × T
- P = Principal amount (starting balance).
- R = Annual interest rate (as a decimal).
- T = Time period (in years).

Example:
- Deposit: $10,000
- Rate: 4% (0.04 as a decimal)
- Time: 1 year
- Calculation: $10,000 × 0.04 × 1 = $400

Note: This formula gives a rough estimate but doesn’t account for compounding interest.

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2. Compound Interest Formula

Compound interest includes earnings on previously earned interest, leading to faster growth.

Formula:
A = P (1 + r/n) ^ (n × t)
- A = Final amount
- P = Principal amount
- r = Annual interest rate (as a decimal)
- n = Number of compounding periods per year
- t = Time (in years)

Example with Daily Compounding:
- Deposit: $10,000
- Rate: 4% (0.04)
- Compounded: Daily (n = 365)
- Time: 5 years
- Calculation: $10,000 × (1 + 0.04/365) ^ (365 × 5) $12,214

You earn $2,214 in interest over 5 years with daily compounding compared to $2,000 with simple interest.

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3. Monthly Compound Interest

For monthly compounding, adjust the formula:
- n = 12 for monthly periods.

Tip: The more frequent the compounding, the more interest earned!

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4. Boosting Your Earnings

To maximize savings account interest:
- Find High-Yield Accounts: Online banks often offer higher interest rates.
- Make Regular Deposits: Consistent contributions increase your principal and compound interest.
- Leverage Tools: Use a savings calculator to estimate growth with different scenarios.

Example with Regular Deposits:
- Start: $10,000
- Add: $100/month
- Rate: 4% APY (daily compounding)
- After 5 years: ~$18,845 (includes ~$2,845 interest).

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5. Other Considerations

• Interest Rate Variability: Savings account rates can change. Monitor rates to ensure you’re getting the best return.
• Certificates of Deposit (CDs): For fixed rates, consider CDs, but note early withdrawal penalties.

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Final Takeaway

Start saving regularly—even small deposits add up! By understanding and leveraging compounding, you can grow your money faster and reach financial goals with minimal effort.

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