Want to know how much can you earn with your savings? So, get ready, and we'll start the easy computation! Source: Public Domain |

### So, How to compute the interest?

Since savings can pour some interest. I bet you've been asking how to calculate them, or maybe you're curious about how much would you earn from the money that you put in there. Whichever it is, one thing is for sure: you are concerned with how much gain you can get from the principal amount. Well, that's exactly the same question that I asked before. I've been curious about the formula to compute it not until I asked a bank personnel as to how these things are done. So, to provide information to those who still strive, I am dedicating this post to you.

Be informed that banks have their own policies, rates, and calculations. There might be differences on the terms and conditions that may apply to a certain account. I am only providing this information for you to set your expectations, and to give you an estimate of the earned interest. It is highly recommended that you visit your bank or branch of account and ask the banker for your concerns.

The formula to be used in getting the interest is this:

**I = P*(r/100)*(n/365)**

where: I = interest earned

P= principal amount

r = interest rate n = number of days in a certain term (monthly, quarterly, semi-annually, yearly)

Most banks provide interest in a monthly basis. That is, the interest is credited to your account every end of the month. Other banks credit the interest quarterly, semi-annually or yearly.

To fully understand, let's take a look at the example below.

*John opened an account on October 1, 2014 and deposited Php10,000 at 5% rate. How much would be the interest at the end of the month if he makes no withdrawal from October 1 to October 31, 2014?*

I = P*(r/100)*(n/365)

= (10,000)*(5/100)*(31/365)

I = 42.47

Thus, the interest is Php42.47 and the total money on his account should be Php10042.47 at the end of October.Money is important, so better use it wisely. Source: Philip Taylor, CC BY 2.0, via flickr and ptmoney.com |

*Suppose that Peter has an initial amount of Php5000 at the start of the month of December. On December 5, he deposited an amount of Php10,000 and another Php10,000 on the 20th. On his birthday, December 28, he made a withdrawal of Php9,000 from his savings account. How much would be the interest if savings is rated at 5% per annum?*

The bank policy on Average Daily Balance (ADB) will be followed in this example. ADB should be computed first since the amount involved is not constant. That is, there are some times that Peter withdraws and deposits an amount. To compute ADB, just sum up the amount, and get the average based on the total number of days in a single term.

Date | Number of days (n) | Available balance in SA (Php) |
---|---|---|

Dec 1 - 4 | 4 | 5,000 |

Dec 5 - 19 | 15 | 15,000 |

Dec 20 - 27 | 8 | 25,000 |

Dec 28 - 31 | 4 | 16,000 |

Computing the ADB:

ADB = {4(5000) + 15(15000) + 8(25000) + 4(16000)} / 31 days

= Php 16,419.35

Using the result for ADB as the principal amount, P:

I = P*(r/100)*(n/365)

= (16,419.35)*(5/100)*(31/365)

I = Php 69.73

The interest earned at the end of the month is Php 69.73. So, the account bears a total amount of Php 16,069.72.

So here it goes. I hope you find this article helpful and you now know how to do the basic calculations in finding the interest earned from your savings.

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