If you have a savings account, you’re most likely earning a bit of interest. But how does interest on a savings account work? We’ve got the answers. Let’s start with the basics of interest.
What is interest on a savings account?
In simple terms, interest is the cost of borrowing money. In most scenarios, you will collect interest if you lend money and you’ll pay interest when you borrow money.
Interest on your savings account will work in this same way and opening a savings account is an easy way to get started earning interest. When you open an account, you’re essentially lending your money to the bank and charging interest.
How does interest on a savings account work?
Our customer was specifically interested in comparing his current account (a traditional savings account with a 0.05% interest rate) with EQ Bank’s Everyday Savings Account. EQ Bank currently offers the most competitive interest rate on the market with 2.30%.
So let’s say you put $10,000 into your account with EQ Bank that offers a 2.30% annual interest, which compounds monthly. Assuming you leave the $10,000 alone, by the end of the year – your account would earn roughly $232* in interest.
If you did the same thing with a 0.05% savings account, you would earn about $5 in interest by the end of the year.
Which savings account is right for you?
Put simply, it depends on your unique financial needs. Savings accounts with traditional banks have typically lower interest rates because they offer conveniences to customers. If you like walking into a bank, receiving excellent customer service, and having access to ATMs anywhere – then sticking with a low-interest savings account may be a good idea.
However, if you’re looking for a higher interest account to put away some savings in to watch your money grow, with no monthly fees or minimum balance, then an online bank such as EQ Bank may be the better option.
If you’re ready to start earning more on your on your savings, then opening an account with EQ Bank, it’s time to get started!
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*In order to increase clarity in this post, the figures have been slightly rounded.