Expert: Gina Boykin - 5/3/2009

Question
If I put £25.000 in a savings account of 3.50% how much interest could i make?

Answer
The answer depends on how long you keep the money in your savings account, and how often interest is compounded.  For example, 3.5 percent of 25,000 is 875, so that is how much you would make in one year.  However, if the bank account provides interest that is compounded quarterly (4 times a year), you end up with 886.55 in interest by the end of one year.  

As you can see, the greater the compounding, the more money you will make.  So, if you see three banks that offer the same rate, and one offers monthly compounding, and the others offer quarterly and annual compounding, the one with monthly compounding is best for you, and the annual is worst.

There are many calculators on the web that can give you the exact amount of interest over different time periods, with various rates and compounding methods. Check out www.bankrate.com/calculators and click on the "Simple Savings Calculator".