How to calculate savings account interest?

How savings accounts work

What is a savings account?

A savings account can help you achieve short-, medium- and long-term goals like a vacation, school expenses or an emergency fund.

A savings account is more appropriate for savings goals as you typically earn interest when you deposit money for an extended period of time. Your deposit is often called the "principal".

Accessing your savings account

You should be able to access your savings account funds at any time from your bank, using online banking or ATMs.

However, unlike a chequing account, a savings account is not typically meant to be used for day-to-day transactions because although savings accounts do not typically have monthly fees, they often have a limited number of transactions compared to chequing accounts.

Many banks will allow you to transfer funds between your savings and chequing accounts for no fees.

What is the difference: Simple interest vs Compound interest?

Simple interest

Definition: Simple interest is the interest earned solely on the original deposit. It doesn’t include interest earned over time.

Simple interest formula: While all banks will list interest rate on all their bank accounts, you can calculate the simple interest rate by taking the initial deposit or principal, multiplying by the annual rate of interest and multiplying it by time, usually a month or a year.

Simple interest calculation example: Here’s how to calculate simple interest:
$1,000 x 12% Annual rate of interest (0.12) x 1 year = $120 in interest per year or $10 a month.

Compound interest

Definition: Unlike simple interest, which is solely calculated on the initial principal, compound interest is calculated on both the principal and the accumulated reinvested interest over time.

Compound interest grows money at a faster rate than simple interest. It can be compounded daily, monthly, quarterly, and yearly. That means that your savings can grow faster.

Compound interest formula: You can calculate compound interest using this formula:
The initial balance plus the interest earned multiplied by time.

Compound interest calculation example: If you have $1,000 with a 5% annual rate of interest (0.05), you’ve earned $50. The next year, you’ll earn interest on $1,050, which is $52.50.

Most accounts are compound interest accounts: Savings accounts are compound interest accounts and offer a higher interest rate, which makes them a better option for saving for your goals compared to a chequing account.

What are the benefits of compounding interest?

Increasing wealth and achieving financial goals

Compound interest can be a great tool to help you meet your financial goals and increase your wealth. It relies on time, so the longer you leave your money in your account, the more it earns over time.

What are TD's interest rates?

The interest rate on TD savings accounts varies depending on the account, and the balance you keep in that account may put you in a different tier. Tiers are ranges of amounts with corresponding interest rates. Interest rates may change without notice.

Savings calculator

See how your deposit can increase over time using our TD's Compound Interest Calculator

How to increase your savings?

Choose your savings account wisely

You want to choose the right account for you. Some features to keep in mind when choosing:

  • Interest rate(s)
  • Initial deposit as it could determine your interest rate
  • Ease of use
  • Transaction Fees

Invest in high yield savings accounts: This is a savings account that pays more than the average savings account.

It’s a great way to meet your financial goals and grow your investments.

These accounts typically require a larger minimum balance.

Look for interest rate increase opportunities: Some banks will offer interest rate increases to encourage people to save money.

This might be in the form of an initial offer for a limited period when you open an account.

If the Bank of Canada increases interest rates, that increase could raise the interest earned on your savings.

With some accounts, as your balance increases, so does your interest rate.

Frequently deposit money

The more money you put into your savings account, the more interest you can earn over a period.

You can set up regular automatic deposits from your Chequing to your savings accounts.

At TD you can setup a Pre-authorized Transfer Service to transfer funds to your savings account on a schedule that works best for you (daily, weekly, or monthly). We also have our Simply Save Program which allows you to save a little bit ($0.50 - $5.00) every time you use your TD Access Card for debit purchases or ATM withdrawals.

What are the available TD Savings Accounts?

TD ePremium Savings Account

Save more with a higher interest rate1

  • No monthly fee
  • High interest rate on balances of $10,000 and more1
  • Free online transfers to your other TD deposit accounts5

TD Everyday Savings Account

Ideal if you’re starting to save and may need monthly access to your funds

  • No monthly fee
  • Interest earned on every dollar
  • One transaction per month3
  • Free online transfers to your other TD deposit accounts5

TD High Interest Savings Account

This account offers a high interest rate, helping you reach your goals faster.

  • No monthly fee
  • Transaction fee waived with a minimum monthly balance of $25,0004
  • Free online transfers to your other TD deposit accounts5

Frequently Asked Questions

When you deposit money into a savings account, you may earn interest. This interest is deposited into your account and in the next month, you earn interest on the initial balance and the interest earned in the previous month.

You should look for:

  • The interest rate
  • The initial deposit and minimum balance requirement
  • Transaction fees

You can get interest daily, monthly, quarterly, and yearly depending on the type of account.

The bank pays you interest on the money in your savings account.

Yes, you may have to pay tax on savings account interest. Depending on the account. tour bank will send you the right tax form so you can enter it into your taxes.

Any interest is based on your marginal tax rate.

Inflation can shrink your savings so it may not make sense to keep your money in a savings account if your goal is retirement.

However, there are some reasons to use a savings account:

  • You need accessible cash in case of an emergency or for a major purchase like a fridge or phone.
  • You earn interest on the money while you’re saving for your goal
  • You can automate your savings which can help you achieve your goal and increase your wealth.

You can calculate the monthly savings interest rate by multiplying the principal or initial balance by the interest, and then multiply again by the time of one year, then divide by 12.

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