How to calculate interest

There are many calculators out there to help you project your earnings in an interest bearing investment or account (like a StewardAccount® from Lutheran Church Extension Fund), including those on LCEF’s website.

But it’s a good idea to know how to make those calculations yourself.

Simple Interest

Dollar Amount x Interest Rate x Length of Time (in Years) = Amount Earned

Example

• If you had $100 in a savings account that paid 6% simple interest, during the first year you would earn $6 in interest. $100 x 0.06 x 1 = $6
• At the end of two years you would have earned $12.
• The account would continue to grow at a rate of $6 per year, despite the accumulated interest.

Compound Interest

(use this to calculate your Young Investors StewardAccount®)
(Original $ Amount + Earned Interest) x Interest Rate x Length of Time = Amount Earned

Example

• If you had $100 in a savings account that paid 6% interest compounded annually, the first year you would earn $6 in interest. $100 x 0.06 x 1 = $6 $100 + $6 = $106
• With compound interest, the second year you would earn $6.36 in interest.
• The calculation the second year would look like this: $106 x 0.06 x 1 = $6.36 $106 + 6.36 = $112.36