Savings Acounts Interest Offers

The interest on a savings account is a sum of money paid by the savings and loan, bank, or what have you, on the deposited funds. Whereby the interest paid to depositor is less than that charged for borrowing, which is one way that banks manage to generate revenue.

There are several factors that help determine the amount of interest that is offered. These include the current money supply, expectations of loan activity (the need to fulfill loan applications), any default risks associated with making loans, government policies, the types of savings accounts that accrue this interest and whether amounts being offered are fixed or variable rate amounts.

Typically the interest rate is stated in terms of earnings percentage. Thus a rate of 4% advertised on savings deposits, against $100 in savings, amounts to a yearly sum of $4, pretty straighforward. Although this amount would reflect an interest calculation based on simple interest. Where the funds instead earn compound interest the amount earned gives a higher effective rate, since interest accrued is based on the number of periods of interest on the principal and interest accumulated. That same $100 deposit would earn $4.07 when compounded monthly with the deposit amount held constant throughout the course of the year.