Beginner's Question on Finance / Investing / Interest

[hanzj]

Okay, so a savings account gives 1.2% interest.


How much interest will you have by the end of September if you put in $5,000 on July 23?

How much interest will you have by the end of October if you put in $5,000 on July 23?

[Bachstelze]

Depends when the interests are calculated and paid.

[KiwiNZ]

In real terms none. At that rate , inflation plus bank charges and taxation would have taken care of it plus some.

[Bachstelze]

In real terms none. At that rate , inflation plus bank charges and taxation would have taken care of it plus some.

Not all saving accounts are subject to taxes. At least here, I have one at 2.25 % tax-free. Only until I'm 25, though. :p After that it will be 1.25, still tax-free.

[ubunterooster]

Okay, so a savings account gives 1.2% interest.


How much interest will you have by the end of September if you put in $5,000 on July 23?
How much interest will you have by the end of October if you put in $5,000 on July 23?Assuming 1.2 is APY (average percentage yield), credited yearly, and deposited monthly:
You will have $5,010 in September and
You will have $5,015 in October

[Cuddles McKitten]

Savings accounts, from a "savings" standpoint are just about worthless. If you're looking to earn interest on money in a safe way, you can look into (in increasing risk, and, for the most part, reward) certificates of deposit from banks (insured by the FDIC if you're in the US), money market accounts, government debt (treasuries), and corporate debt (bonds). The latter two will require a great deal of research before buying if you consider those, while the first two should be very straightforward to get into.

P.S. If you're looking long-term 10 years+, you might want to wait to buy US treasuries, since they're bound to drop in price and give better yields over that time period unless something absolutely ridiculous happens like China exploding or Berlin getting invaded by Martians.

[JDShu]

I recommend reading A Random Walk Down Wall Street by Burton Malkiel. It has sound advice on how to invest and explains the economics behind it in a very simple way.

[hanzj]

Assuming 1.2 is APY (average percentage yield), credited yearly, and deposited monthly:
You will have $5,010 in September and
You will have $5,015 in October

Dear Ubunterooster,
Thanks for taking the question as it was and simply answering it. I vote this Most Helpful reply.

[JDShu]

Dear Ubunterooster,
Thanks for taking the question as it was and simply answering it. I vote this Most Helpful reply.

If this is a homework question, I hope you understood what Ubunterooster's assumptions were.

[Warpnow]

The formula for compound interest is...

Yield = C(1+R)^(T/12)

C = Capital
R = Rate.
T = Months.

T depends on when interest is calculated. End of month? Then on your first example, it would be 3 months. July, August, September. Beginning? 2

If its 3, then the formula would be...

$5,000 * 1.012^3/12

or, 1.012^.25, or 1.002986594

So multiple $5,000 by 1.002986594, and you get...

$5,014.93