1. What is Monthly Savings Interest?

Monthly savings interest represents the amount earned on a savings balance each month based on the annual interest rate. It's calculated by dividing the annual rate by 12 and applying it to the current balance.

2. How Does the Calculator Work?

The calculator uses the monthly interest formula:

Where:

• \( Balance \) — Current savings balance (currency)
• \( r \) — Annual interest rate (expressed as a decimal)

Explanation: The formula divides the annual rate by 12 to get the monthly rate, then multiplies by the balance to calculate the interest earned that month.

3. Importance of Interest Calculation

Details: Understanding monthly interest helps savers project earnings, compare savings products, and make informed financial decisions about where to keep their money.

4. Using the Calculator

Tips: Enter your current balance in currency units and the annual interest rate as a decimal (e.g., 0.05 for 5%). All values must be valid (balance > 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 12 in the formula?
A: We divide the annual rate by 12 to convert it to a monthly rate since there are 12 months in a year.

Q2: Does this calculation account for compound interest?
A: No, this calculates simple monthly interest. For compound interest, the calculation would be more complex as it would include interest earned on previous interest.

Q3: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't include compounding, while APY (Annual Percentage Yield) does and gives a more accurate picture of earnings.

Q4: How often do most savings accounts pay interest?
A: Most savings accounts compound interest daily or monthly and pay it out monthly.

Q5: Are there taxes on savings interest?
A: In most countries, interest earned on savings is considered taxable income and must be reported on tax returns.