What does 6% interest on a savings account actually mean?
If i have 100 in a savings account paying 6% on a monthly basis how much interest would i get after a month? Also would this be the same with say 8% on a current account or do they work differently?
Personal Finance - 4 Answers
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Answer 1 :
It means you get 6% of whatever your average balance is over the course of the year. (Minus taxes of course)
Answer 2 :
You would get 6% in a year which would be £6 per year. If paid monthly, it wuld be about 50p / month. It is actually worked out daily, so the amount may be slightly different but not by much. Also, it would be taxed, so if you are earning a salary, you would get less than that.
Answer 3 :
100 x .06 equals 6.00 divided by 12 months equals 50 cents a month interest 100 x .08 equals 8.00 divided by 12 months equals 75 cents a month interest
Answer 4 :
You will recieve close to $6, but the key question is how often the amount is compounded. If the account is compounded monthly you would take your average balance during the month and multiply it by 6%/12. This will give you the amount of interest earned that month. The following month, you take the principal + interest and again multiply it by 6%/12. The higher the compounding rate the higher the effective interest rate (i.e daily compounding is better than monthly, which is better than annual). But on amounts like $100, the differences are not too much. For instance an annual compound of $100 = $106 at the end of the year. A monthly compound = $106.17, with a daily compound = $106.20 by year end.
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