The savings account may be the first bank account to which your name was attached. Parents often open savings accounts in their children's names to help kids understand the concepts of saving and compound interest. The idea that money left alone in an account can increase its value seems almost magical. But the fantasy vanishes when you have calculate savings dividends. The formula is simple, but applying it may test your math skills.
Daily Balance
Find the savings interest rate. For discussion purposes, assume a 2 percent interest rate.
Calculate the periodic interest rate. To find the periodic interest rate, divide the interest rate by the number of days in the year (365) and multiply the result by 30 (days in a month). In this case, 0.2 divided by 365 equals 0.000005479. 0.000005479 times 30 equals 0.00016437, the periodic interest rate.
Find out the end-of-day balance for each day in the month in question. For example, if you are calculating the June dividend amount, you will need to know what you account balance was at the close of each June day.
Discover the accumulated end-of-day balance for the month. Accomplish this by adding together the end-of-day balances for the month. In this example, the accumulated account balance is $60,000.
Calculate the average daily balance for the account. Divide the accumulated end-of-day balance by the number of days in the period. Continuing with the above example, $60,000 divided by 30 equals $2,000.
Multiply the periodic interest rate by the result - $2,000 times 0.00016437 equals $32.87 in interest for the month of June.
