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How does interest work in a savings account?
– moneysense.ca
Do you know how interest rates work when it comes to your bank account? If not, you’re not alone. Nearly four in 10 Canadians surveyed don’t fully understand it, according to research by Angus Reid on behalf of PC Financial.
When you hold money in a savings account, interest is money you receive for lending those funds to the financial institution. The interest is calculated daily and paid out monthly. The interest rate, usually shown as a percentage, is how much interest you get per year. A higher interest rate means your money grows faster.
Here’s an example. If you have $10,000 in a savings account with a 3.1% annual interest rate, over the course of one year, you’ll earn $314 in interest. That’s a pretty sweet return, and with no effort on your end. The longer the money is in your account, the more interest it earns. That’s why it’s so powerful to start saving early.
How banks set interest rates
Financial institutions such as banks and fintechs set account interest rates using the Bank of Canada’s policy interest rate as a guide…
