what three variables determine how much interest a person could earn from a savings account?
The three main variables that determine how much interest a person could earn from a savings account are:
- Principal (how much money you deposit)
- The more money you put into the account, the more dollars of interest you earn, because interest is calculated on your balance.
* Doubling your balance (for the same rate and time) roughly doubles the interest earned.
- Interest rate (or APY)
- This is the percentage the bank pays you each year on your savings; higher rates mean more interest earned.
* Banks set these rates based on things like economic conditions and their own policies, so different banks can pay very different rates.
- Time (how long the money stays in the account)
- Interest grows over time; keeping your money in the account longer increases total interest earned.
* With compound interest, time matters even more, because you start earning interest on previous interest as well.
In short: how much you deposit, the rate the bank pays, and how long you leave the money in the account together decide how much interest you earn.