Savings Accounts 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
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 straightforward.
Although this amount would reflect an interest
calculation based on simple
Where the funds instead earn compound
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.