What Is a Compound-Interest Savings Account? If you are looking to build yourself up very quickly so that you can save up for that vehicle or that house you want to buy, then one of the things we should take a look at is a compound savings interest account.
This is because it allows you to end money in two different ways rather than just one. That being said, today we are going to be taking a look at what a compound interest savings account is and everything you need to know about it.
What is a Compound-Interest Savings Account?
so that you will be able to know how it works and how you would be able to apply it to your financial life to earn higher interest rates and quickly save up more money. There for any sounds like you are interested in following me, I’ll go ahead and jump in.
What is a Savings Account?
Everyone knows what a savings account is, even an infant that is yet to be born. But that will not stop us from refreshing our minds on what it is so that we can then take a look at the types. A service account is basically an account that earns you money in interest when you deposit it in a bank for a particular period of time.
It is very important to note that the funds in a savings account are not readily available to you, which means a savings account cannot be used as a day-to-day account for day-to-day activities. In any service account, there is no chequebook, and you definitely do not have a debit card attached to it. You can only withdraw the money from your savings account when the time is right.
What is a Compound-Interest Savings Account?
There are various types of savings accounts, and one of them is the compound interest savings account. A normal savings account only pays interest on the principal; a compound interest savings account pays interest on both the interest and the accumulated interest. What this means is that a compound interest savings account earns money in two ways.
Firstly, you earn money on your principal, then, secondly, you earn money on your accumulated interest as soon as interest begins to accumulate in the savings account. What this means for you is that he will basically be getting more savings than you get in a normal savings account. This is one of the major reasons people usually opt for compound interest in a savings account.
How does compound interest work?
The way a compound interest savings account works is very easy. It works in two ways: first, you earn interest on the principal you pay, and that interest is determined by a number of factors determined by your bank or financial institution. Now, you will also have an interest in the amount of interest you have earned on the principal.
Just like I explained above, you are going to be paying double interest, which is compound interest, and not just a single interest. In a normal service account un only a single interest which is the interest in my from your principal. But in this case, you are earning interest on the principal and also any interest from the accumulated interest.
How to Calculate Compound Interest
To calculate a compound interest is very easy you can basically go online and use any of the online compound interest calculators to do that. But if you want to calculate the compound interest on your own using any of the online calculators there is a formula that you can use in doing so. The formula is listed below:
A = Amount of interest earned
R = Interest rate
N = Number of times interest is applied per time period
T = Number of time periods elapsed (in months or years)1
You can just now enter the parameters of all the values of your compound interest account into that formula to give you the amount you will be earning in that compound interest account.
Types of Compound-Interest Savings Accounts
There are basically three types of compound interest savings accounts: high-yield savings accounts, money market accounts, and certificate of deposit CD accounts. This account is on a new very high-interest rate than a normal savings account will give you. Some of these accounts can even earn you up to 10 times the national average of a normal savings account.
How do you earn Compound Interest on Savings?
Any compound interest in a savings account is easy because of the fact that you are earning double the compound interest in a normal savings account.
For example, if you deposited $1000 in a compound interest savings account and the percentage interest you are earning in a year is 2% that means you will earn $20 as interest in a year. And you will also earn 0.2 dollars from the $20 interest you earn in a year, which brings the total to $20 plus 0.2 dollars earned in a year. That is easily how people easily earn compound interest in a savings account.
Is a compound interest account a good idea?
The answer to this question is yes because compound interest is a good idea. Compound interest is a good idea because it helps you reach your goal faster in a service account than you would in a traditional savings account. An international service account makes you earn money slowly; however, with compound interest, you are getting more interest.
What savings account has the best compound interest?
The best compound savings accounts are listed below:
- MySavingsDirect – 4.35% APY.
- Popular Direct – 4.16% APY.
- UFB Direct – 4.11% APY.
- Salem Five Direct – 4.10% APY.
- CIT Bank – 4.05% APY.
- Bask Bank – 4.03% APY.
- PNC Bank – 4.00% APY.
- BrioDirect – 3.75% APY.