How Does Interest On A Savings Account Work?
November 23, 2017
Happy Financial Literacy Month! As you may know – we’re answering questions that our customers asked about personal finance and building credit.
Our goal at Borrowell is to help Canadians make great decisions about credit and improve their financial well-being through free credit score monitoring, personal loans, and financial product recommendations. We’re also pretty big on credit education. So if you have a credit related question you’d like answered, simply tweet us or send us a message on Facebook.
The customer question we’ll be answering in this blog is: how does interest on a savings account work? We’ve got the answers, let’s start with the basics.
What is interest on a savings account?
In simple terms, interest is the cost of borrowing money. In most scenarios, you will collect interest if you lend money and you’ll pay interest when you borrow money.
Interest on your savings account will work in this same way and opening a savings account is an easy way to get started earning interest. When you open an account, you’re essentially lending your money to the bank and charging interest.
How does interest on a savings account work?
Our customer was specifically interested in comparing his current account (a traditional savings account with a 0.05% interest rate) with EQ Bank’s Everyday Savings Account. EQ Bank currently offers the most competitive interest rate on the market with 2.30%.
So let’s say you put $10,000 into your account with EQ Bank that offers a 2.30% annual interest, which compounds monthly. Assuming you leave the $10,000 alone, by the end of the year – your account would earn roughly $232* in interest.
If you did the same thing with a 0.05% savings account, you would earn about $5 in interest by the end of the year.
Which savings account is right for you?
Put simply, it depends on your unique financial needs. Savings accounts with traditional banks have typically lower interest rates because they offer conveniences to customers. If you like walking into a bank, receiving excellent customer service, and having access to ATMs anywhere – then sticking with a low interest savings account may be a good idea.
However, if you’re looking for a higher interest account to put away some savings in to watch your money grow, with no monthly fees or minimum balance, then an online bank such as EQ Bank may be the better option.
If you’re ready to start earning more on your on your savings, then opening an account with EQ Bank, it’s time to get started!
Do you know your credit score? Find out for free (this won’t affect your credit score).
*In order to increase clarity in this post, the figures have been slightly rounded.