When you deposit money in a bank account, the bank usually pays you interest for allowing it to use your money. You may also earn interest on a loan made to another person. To calculate how much interest you have earned, you need to know the annual interest rate, how much money is in the account and how often the interest is compounded in the account. How often interest is compounded is significant, because the more often money is added to the account, the greater the overall amount of interest earned.
Step 1
Divide the annual interest rate by the number of times per year the interest is compounded on your account to find the periodic interest rate. For example, if your bank compounds interest on a monthly basis, you would divide your annual interest rate by 12. If your annual interest rate is 1.56 percent, you would divide 1.56 by 12 to get a monthly interest rate of 0.13 percent.
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Step 2
Divide the periodic interest rate by 100 to convert it from a percentage to a decimal. In this example, you would divide 0.13 percent by 100 to get 0.0013.
Step 3
Add 1 to the interest rate expressed as a decimal. In this example, you would add 1 to 0.0013 to get 1.0013.
Step 4
Use exponents to calculate the result from Step 3 raised to the Nth power, where N is the number of compounding periods the money will be left in the account. In this example, if you were going to leave the money in the account for one year, that would be 12 compounding periods. So you would raise 1.0013 to the 12th power to get 1.015712025.
Step 5
Subtract 1 from the result from Step 4 to calculate the rate of interest over the time the money stays in the account. In this example, you would subtract 1 from 1.015712025 to get 0.015712025.
Step 6
Multiply the result from Step 5 by the amount of money you put in the bank account to determine how much interest you have earned. Finishing the example, if you had $13,200 in the account, you would multiply 0.015712025 by $13,200 to find that you have earned $207.40 in interest.
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