Saving Account Interest Rates

Saving account interest rates are one of the most important factors in choosing the right savings account. Saving account interest rates can be represented as mathematical formulas that determine the amount of money you gain depending on the interest rates applied to your balance. Another way to discuss saving account interest rates is through explaining the terms and figures most commonly associated with interest. In this article, you will learn about interest and the different saving account interest rates you will likely encounter when opening your account.

What Are Saving Account Interest Rates

Interest is defined as a sum of money charged or paid for the borrowing or use of money. Usually, interest is based on an initial amount of money borrowed or deposited and is calculated over a period of time. With regards to saving account interest rates, interest is the amount paid to you for allowing the bank to use your money for loaning to others. There are numerous kinds of saving account interest rates that are dependent on time, deposits and the kind of savings account you have.

Types of Saving Account Interest Rates

There are basically three kinds of saving account interest rates. The first is the simple or nominal interest. Simple interest is based on a percentage of your deposit, which is paid after a fixed period of time (usually for one year). For example, a 5% simple interest for a $5,000 deposit will earn $250 per year. The second type of saving account interest rates is called compound interest. Compound interest rates compound the earned interest with your deposits to continually add more to the interest you earn. Usually, compound interest is calculated daily, so that each cent you deposit or earn through interest is compounded into the next calculation. Third, effective annual interests are calculated through interest rates that are based on time periods (for example 3-month periods). Basically, by compounding the interest earned in those periods, you can come up with your effective annual interest.