Within the instance above, we calculated curiosity on an annual foundation. Financial savings account curiosity might be paid out each day, month-to-month, quarterly, or yearly. The quantity of curiosity earned is calculated on the time it’s paid out, based mostly on the whole steadiness of your account. This consists of each the preliminary deposit and any curiosity you’ve got earned to date.
For a lot of financial savings accounts, curiosity is calculated on a month-to-month foundation. Utilizing the $5,000 instance above and making use of month-to-month compounding, the quantity that earns curiosity grows by one other 1/twelfth of 5%. On the finish of the yr, the deposit may have grown to $5,255.81 versus $5,250. The compounding frequency makes a distinction.