This interest calculator figures your final balance and total interest earned for an initial deposit with or without regular (monthly or yearly) savings additions. There is in depth information about compound interest below the form.
How does this interest calculator work?
This tool can help you estimate the end balance of your savings account and total interest earned by taking account of the following variables:
 Initial deposit which is the starting principal deposited for a certain period of time;
 Yearly addition meaning the fixed amount of money that can be added year by year to the starting deposit;
 Monthly addition which is the fixed regular money that can be added month by month to the savings account;
 Addition moment meaning the moment when the regular contributions are added and can be either at the beginning of each period or at its end;
 Savings term which is the period you assume you will save and deposit your funds;
 Rate of interest is the fixed average return rate you get from the bank;
 Compounding frequency is the method of compounding the interest and depends on the deposit/savings account type;
 Rate of inflation is the inflation percent that is used to adjust the ending balance in such a way to find out the value of the money in today’s dollars;
 Tax rate is the fixed average tax percent that is assumed to be applied to the interest earned.
It is a very flexible solution as it can handle fixed interest rate compounded continuously, monthly, quarterly, semiannually or annually and it takes account of the tax and inflation percentages. The algorithm behind is based on the compound interest formula.
This interest calculator might come in handy in many situations such as when:

trying to forecast your savings growth over a certain period;

comparing between certain savings and deposit account types;

trying to figure out how much you should save on a regular basis in such as way to achieve your goal.
The figures are presented in both a summary report and a detailed one which can be seen by pressing the “OPEN DETAILED CHART” button.
Example of a result
For instance let’s forecast how much an individual will get into account over 5 years by depositing a starting amount of $10,000 plus a fixed and regular monthly contribution of $1,000 and a fixed regular yearly addition of $5,000 at the beginning of each period, with an average interest rate of 3% compounded annually and an assumed inflation of 1.5% and tax rate of 1%. The savings growth report displayed by this finance tool will be:
Account summary:
Final Balance after 5 years 
$103,583.52 
Final Balance after adjusting with inflation 
$96,152.47 
Total principal saved 
$95,000.00 
Total interest earned 
$8,670.22 
Total tax paid for the interest earned 
$86.70 
What is interest?
Apart from its standard financial definition, interest can be seen as what you get from your money when you save. This is applicable in case of the saver where it is seen as the return rate; while in case of an individual who borrows money this is the cost of the money owed. The same concept has a different meaning when analyzing it from banking perspective. From financial institution’s perspective interest represents the tool to attract money from people willing to save and deliver or drive them to people who need to be financed for a business, or a mortgage or car loan. Practically this is instrument the bank uses to generate profits from its business. From bank’s point of view the interest rate should cover the inflation rate (decreasing power of money rate) plus a margin of profit. The bank profit comes from subtracting the total interest paid from total interest collected.
That is why, the interest rate on loans is a bit higher than the savings rate, which in turn is a little lower than the reference rate used.
No matter if it is interest rate received in case of a savings account it is an interest percent paid on a loan or mortgage, financial products use either fixed interest rate which is constant during the agreed term, or “variable” which is a floating rate based on some reference indicator which is a interbank rate. For instance within US the floating interest rate is determined by reference to the U.S. Federal Reserve (Fed) funds rate or in case of European Union (EU) the indicator used it the Euribor.
There are two types of interest: one is simple interest which is the one that do not capitalize to the principal deposited and the second type is the compound interest that gets capitalized to the principal with a certain frequency.
As mentioned above, in finance the nominal interest rate consist in the inflation rate and the real interest rate. Within United States the inflation rate registered in 2013 a value of 1.45% as released to the public by the national institution, while in 2014 this is expected to rise up to 1.7%. That means an interest rate below the inflation percent conducts in losing the real purchasing power of the money owned.
Based on the above explanation on how interest works, even though it can easily be concluded that the savings interest percentage cannot be at the level we would like to see it, it is still one of the most viable and safest financial instruments to invest in.
08 Dec, 2014  0 comments
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