Home
Back
Savings Interest Formula:
| From: | To: |
The compound interest formula calculates the future value of savings by accounting for the effect of compounding, where interest is earned on both the principal and previously accumulated interest. This provides a more accurate projection of savings growth over time.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how much your savings will grow based on the principal amount, interest rate, compounding frequency, and time period.
Details: Understanding compound interest is crucial for financial planning, retirement savings, and investment decisions. It demonstrates how money can grow exponentially over time through the power of compounding.
Tips: Enter the principal amount in AUD, annual interest rate as a decimal (e.g., 0.05 for 5%), number of compounding periods per year, and time in years. All values must be positive numbers.
Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest, leading to faster growth.
Q2: How does compounding frequency affect savings?
A: More frequent compounding (e.g., monthly vs. annually) results in higher returns because interest is calculated and added to the principal more often.
Q3: Are Australian savings accounts compounded daily or monthly?
A: Most Australian savings accounts compound interest daily and pay it monthly, but this can vary by financial institution.
Q4: What is a typical interest rate for Australian savings accounts?
A: Rates vary but typically range from 0.5% to 5% depending on the account type, balance, and current economic conditions.
Q5: Are there taxes on savings interest in Australia?
A: Yes, interest earned on savings is considered taxable income and must be declared to the Australian Taxation Office.