How to calculate interest on your savings account

We all like the idea of making our money work harder, but how do you actually know if your savings are doing their job? It comes down to the math. 

Knowing how to calculate interest on your savings account doesn’t just let you estimate how much you could earn on what you’ve already saved. It gives you the blueprint to compare accounts and find the highest rates in Canada. Let’s break down exactly how interest gets calculated and how you can get more out of every dollar you save.

How compound interest works in a savings account

Savings accounts use compound interest—simply put, that’s interest calculated on your balance plus any interest already earned. Each period’s interest becomes part of the next period’s principal. That distinction matters for your calculations. So you’re earning interest on top of interest.

Here’s an example:

The more frequently interest compounds—whether daily, monthly, or annually—the faster your balance grows. Most high-interest savings accounts compound daily, which is why they outperform traditional savings accounts even at the same stated rate.

How much should I save each month?

There’s no right or wrong answer, but creating a budget is a good starting point. Assess how much you earn, how much you spend, and what remains. This exercise can help determine how much you can afford to save on a regular basis.

Beyond a budget, one savings bucket many personal finance experts suggest prioritizing is your emergency fund. Think of it like a safety net and personal insurance policy that you can fall back on when the unexpected arises, like losing your job or having to repair a broken fence in your backyard. (Here’s why a line of credit shouldn’t be your emergency fund.)

How to build an emergency fund

You decide how much you want to keep in your emergency fund, but a good rule of thumb is saving at least three to six months’ worth of expenses. This ensures you can continue to pay your bills, debts and other necessities if you lose your income. For example:

Whether you decide to build up an emergency fund or save for another goal, like a vacation, car or wedding, it’s important to stay consistent. Making consistent contributions to a high-interest account can help you achieve your goals sooner.

How to compare savings account options

Now that you know how interest is calculated, you can compare accounts. When comparing HISAs, there are a few terms you need to pay attention to, including:

• Interest rate is the rate at which the money in your savings account grows. The higher the interest, along with your account’s compounding frequency, determine how much your money can grow.
• Compounding frequency is how often a financial provider calculates interest on the money in your account. Two accounts offering the same rate can grow your money at different speeds depending on compounding frequency. The more often, the better.
• Fees are the costs to keep and use your account. Monthly fees can chip away at your total earnings, so when comparing, keep an eye out for zero-fee options like the Neo Savings account. 
• The minimum balance requirement is how much money you are required to keep in your savings account to avoid fees or keep your privileges. Some financial institutions may charge penalties if your balance falls below the minimum.

How to earn more interest in your savings account

Higher interest rates and more frequent compounding means your balance grows faster, but how much you earn isn’t fully dependent on your financial institution. There are a few habits you can adopt to make a meaningful difference:

1. Make regular deposits. Automating a fixed deposit every month or every week builds consistent savings (and grows your interest earned).
2. Re-invest your interest. Let the interest your account earns stay right where it is. Remember every dollar you pull out lowers how much you’re compounding.
3. Open goal-specific accounts. Separating your emergency fund, vacation savings and down payment into dedicated accounts keeps you organized and removes the temptation to take money out for other reasons. 

Ready to earn more? Open a high-interest savings account with Neo. With interest rates that grow with your balance—up to 2.75%¹—every dollar starts earning the moment it lands. No monthly fees or minimum balance means nothing eats into your gains.

Watch your interest grow in real time with the Neo Savings account.