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Frequent Contributor
Posts: 413
Registered: ‎10-01-2015

Savings Account Interest -- Help Me Understand

So, apparently I do not understand how interest on a savings account works. I apologize in advance if I'm just being totally goofy here for not understanding.

 
My situation -  I recently opened a savings account with Alliant CU  because they had the highest rate I could find that did not also have a ginormous balance requirement.  Their rate is -- .995%.  Anywhere else I came across was considerably less.  Again. I needed somewhere that didn't require a $10k (for example) minimum balance. Alliant's requirement was that interest starts accruing after the first $100 deposit.   I don't make a lot of money but I want to start saving for a down payment for a house. My goal is $25k and my time frame is 2 years.
 
So for the purpose of this post I will leave out the month of January since the amounts varied too much and there was not a full month's time involved in the calculations.  Though I will say, my interest for January was 12 cents.
 
Anyway, I opened the 2nd statement period with an approx $600 balance and closed it with an approx balance of $1,100.  So, in theory  I should have gotten at minimum $5.97 in interest, correct?  That is assuming .995% on a $600 balance for the duration of the statement period. But, really it would have a been a little more, just depending on the additional deposits and how many days interest accrued on those during the month.
 
I would have been fine with $5.97 and that's what I was kind of expecting when my statement cut the other day.  But, to my surprise and dismay, my interest on my 2nd statement was on $.76. That's 76 cents for anyone who missed it. I have never had an interest bearing savings acct before but that seems wrong to me.  
 
That's it???? What am I missing?  I am no math whiz but I can figure simple interest.  I even plugged in my numbers into a few simple interest calculators just using the $600.00 and it also shows that I should have accrued $5.97 in interest in on month
 
I am clearly missing something. Can someone please explain how this works so I can adjust my expectations.  Thanks!
 
 
I just verified all of this from my last statement:
 
Feb 2017 (2/1/2017 - 2/28/2017)
Opening: $605.26
Deposits: $500.76
Ending Balance: $1,106.02
Dividends Earned: $0.76
 
APR: 1.00%
Deposit Dividend: 0.995%
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Regular Contributor
Posts: 173
Registered: ‎01-29-2017

Re: Savings Account Interest -- Help Me Understand

APR and Interest on a Savings account are per year not per month. So talk the .995% interest rate and divide by 12 months that is how much interst would roughly be applied in a month, its a bit more involved in that mathmatically but that will be close.

FICO 8 Scores 02/21/2017 EQ 593, TU 584 EX 602 -- 06/21/2017 - EQ 632, TU 652, EX 656
Regular Contributor
Posts: 173
Registered: ‎01-29-2017

Re: Savings Account Interest -- Help Me Understand

Synchrony Bank has a savings account with no minimum deposit offering 1.05% interest if you really trying to squeeze every penny of interest.
FICO 8 Scores 02/21/2017 EQ 593, TU 584 EX 602 -- 06/21/2017 - EQ 632, TU 652, EX 656
Valued Contributor
Posts: 1,592
Registered: ‎06-13-2016
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Re: Savings Account Interest -- Help Me Understand

Barclays has a Dream Account with a 1.05 APY as well. They also give you a bonus for 1). Making 6 consecutive monthly deposits, and/or 2). Going 6 consecutive months without making a withdrawal. So, it is possible to get both bonuses every 6 months. Each bonus is 2.5% on the past 6 months interest. You're not going to get rich, but it's something! Smiley Happy

Current Scores------ EQ 683; TU 657; EX 679 FICO 08---------------- Gardening until 07/29/18
Beginning Scores-- EQ 632; TU 576; EX 619 FICO 08 (06/13/16) - BK7 discharged 11/2015

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Senior Contributor
Posts: 4,487
Registered: ‎07-17-2014
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Re: Savings Account Interest -- Help Me Understand

The most cost effective way to make money from bank accounts is not to try to earn interest.  Even if somebody has $10,000 in a savings account at 1% interest, that's still only $100 per year -- and that's before taxes.

 

Instead, you may want to consider the hobby of bank bonus chasing.  That's where a bank offers a promotion for opening a savings or bank account with them.  E.g. a $300 promotion.  You open the account, get the $300, then close it maybe six months later.  Yoy can easily make $1000 a year doing that, often much more.

 

If you want to couple that with high interest savings options, there are some places that offer 5%, though there is typically a ceiling of how much you can put in.  (e.g. 5k)

Super Contributor
Posts: 6,168
Registered: ‎02-24-2015
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Re: Savings Account Interest -- Help Me Understand


cam3150 wrote:

So, apparently I do not understand how interest on a savings account works. I apologize in advance if I'm just being totally goofy here for not understanding.

 
My situation -  I recently opened a savings account with Alliant CU  because they had the highest rate I could find that did not also have a ginormous balance requirement.  Their rate is -- .995%.  Anywhere else I came across was considerably less.  Again. I needed somewhere that didn't require a $10k (for example) minimum balance. Alliant's requirement was that interest starts accruing after the first $100 deposit.   I don't make a lot of money but I want to start saving for a down payment for a house. My goal is $25k and my time frame is 2 years.
 
So for the purpose of this post I will leave out the month of January since the amounts varied too much and there was not a full month's time involved in the calculations.  Though I will say, my interest for January was 12 cents.
 
Anyway, I opened the 2nd statement period with an approx $600 balance and closed it with an approx balance of $1,100.  So, in theory  I should have gotten at minimum $5.97 in interest, correct?  That is assuming .995% on a $600 balance for the duration of the statement period. But, really it would have a been a little more, just depending on the additional deposits and how many days interest accrued on those during the month.
 
I would have been fine with $5.97 and that's what I was kind of expecting when my statement cut the other day.  But, to my surprise and dismay, my interest on my 2nd statement was on $.76. That's 76 cents for anyone who missed it. I have never had an interest bearing savings acct before but that seems wrong to me.  
 
That's it???? What am I missing?  I am no math whiz but I can figure simple interest.  I even plugged in my numbers into a few simple interest calculators just using the $600.00 and it also shows that I should have accrued $5.97 in interest in on month
 
I am clearly missing something. Can someone please explain how this works so I can adjust my expectations.  Thanks!
 
 
I just verified all of this from my last statement:
 
Feb 2017 (2/1/2017 - 2/28/2017)
Opening: $605.26
Deposits: $500.76
Ending Balance: $1,106.02
Dividends Earned: $0.76
 
APR: 1.00%
Deposit Dividend: 0.995%

Interest rates are so low that it's not even worth worrying about, but the interest rate is per annum, not per month.


FICO8 EQ 736 TU 761 EX 741 FICO5 EQ 720 Total revolving 422500
Contributor
Posts: 82
Registered: ‎09-29-2016
0 Kudos

Re: Savings Account Interest -- Help Me Understand

I'm interested in getting a new savings account. I have $8400 in a Discover savings account. Though for some strange reason my interest paid DROPPED even though I added more money to it. For a $8300 balance it paid me $6.47 but for a $8400 balance next month it gave me $6.07. Adding $100 more it droped 40 cents which is weird.

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Valued Contributor
Posts: 3,007
Registered: ‎08-13-2009

Re: Savings Account Interest -- Help Me Understand

The interest paid per month is based on the number of days IN the month.  February is a short month, so less interest on the same or higher balances.  Smiley Happy

Regular Contributor
Posts: 130
Registered: ‎02-28-2017

Re: Savings Account Interest -- Help Me Understand

That, along with if money is added/subtracted from the balance throughout the month, that can affect interest accrued. It is based off of the average daily balance, not just the total sum on the last day.

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