Simple Ways To Estimate How Much Interest Your Savings Account Will Earn

You have probably wondered, “How much will my money actually grow in a savings account?” That is where a savings account interest rate makes all the difference. It tells you how much your bank pays you for keeping your money with them. But simply knowing the rate is not enough; you need to estimate what your balance will earn over time. 

In this blog, you will go through some simple and practical steps to estimate interest. Continue reading to know how banks like IDFC FIRST Bank calculate interest and how you can use an online savings account interest calculator to make your planning easier.

1. Understand The Rate Structure

Interest is calculated on daily end-of-day balances and credited monthly.

Because of this structure, part of your balance may earn a lower rate and part a higher rate. That is called progressive interest.

2. Use A Simple Manual Estimate

Here is the formula that banks typically use to calculate savings account interest rate:

Monthly Interest = Daily Closing Balance x (Number of Days) x Interest / (Days in the Year).

Suppose that you have a ₹5 lakh closing balance in your bank account and an annual interest rate of 5%.

Monthly Interest = 5,00,000 x 30 x (5/100) / 365 = ₹2,055.

Now, according to the latest RBI norms, savings account interest calculations are done daily based on the closing balance in your account. However, the interest that you earn on your savings account is usually credited to your account quarterly or half-yearly, depending on the type of savings account you have and the bank’s policies. IDFC FIRST Bank goes above and beyond by giving you monthly interest credits, which means that the interest on your Savings Account is credited to your account every month.

3. Use The Bank’s Savings Account Interest Calculator

To save time and get precise estimates, IDFC FIRST Bank offers a savings account interest calculator on the Bank’s website.

• Enter your current balance.

• Set the applicable interest rate slab(s).

• The tool instantly shows your projected interest and helps you compare different balance scenarios.

This is especially helpful if your balance is on more than one slab, because the calculator takes care of the progressive interest calculation on its own.

4. Account For Compounding / Monthly Credit

Since interest is credited monthly, you earn “interest on interest.” That means your balance for the next month earns a little more because it includes last month’s credited interest. Over time, this effect compounds growth.

Because of monthly compounding, your actual yield can slightly exceed a straight-line estimate. IDFC FIRST Bank’s Savings account interest calculator can help you figure this out.

5. Adjust For fluctuations

In real life, account balances go up and down (withdrawals, deposits). For best estimates:

• Use average daily or monthly balances over the period.

• If you expect large inflows or outflows, break the estimation into segments and calculate interest in parts.

Conclusion

Estimating how much interest your savings account will earn does not need to be a headache. By knowing the savings account interest rate structure and using a savings account interest calculator, you can project growth accurately. 

Even a simple manual method gives you a solid ballpark. Over time, tracking your actual monthly balances and using these tools help you stay ahead and make informed decisions for your savings.