Interest simplified

[Abdi]

I just need a simple explanation as to how much interest i may accumulate on my Absa business savings account. If i have 50k in my account for 3 months how much interest would i have after the 3 months?

[Nickolai Naydenov]

Depends on what rate they have given you. lets say for example they have given you 4% then 50 000 x 4 % / 12 x 3 = R500 will be our interest for 3 months. Why do you put money in a money market account, is this a short-term investment or what is the objective?

[adrianh]

The correct formula for compound interest is M = P(1 + i)n

M is the final amount including principal
P is the principal
i is the interest earned per period n

So M = 50,000(1+(0.04/12))^3 ---- principal x (1+annual rate/number of months) to the power of the number of months

(This is all based on the assumption that the interest is calculated on a monthly basis and that all interest is left in the account...and no fees or other deductions are made)

=50,000(1.003333333)^3
=50,000(1.01003333)
=50,501.67

Thus the interest that you will earn is R 50,501.67 - R 50,000.00 = R 501.67