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Savings interest rates – demystified!

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Many of us are familiar with how interest is calculated on a loan – to put it simply, you borrow an amount and then repay that amount, PLUS interest. When it comes to savings accounts though, interest is your bonus, so you probably want to find an account with a high interest rate!

Usually, the larger your total savings balance, the higher the tier and, therefore, the higher the interest rate. Tiered interest rates are often used and are based on ranges of dollar amounts.

And, one question we get a lot is: How is interest calculated on a savings account?

How interest is calculated on a savings account

Interest on savings and deposit products is generally calculated on a compounding basis or a simple interest basis.

Compound interest is interest paid on deposits as well as the interest on money you have invested, so you earn interest on your interest. In contrast, simple interest is when interest is paid at the end of a specified term only on funds you’ve deposited (although if the term is more than 12 months, interest may be paid monthly or annually). Generally, term deposit accounts accrue interest on a simple interest basis (like our Term Deposits) and other transactional savings accounts accrue interest on a compounding basis (like our general Savings Account).

For example, with compounding interest, if you invest $100,000 at 10% p.a. with interest compounding monthly, you would earn interest as follows (rounding to two decimal places):

Month 1: $100,000 x (1 + 10%/12) = $100,833.33

Month 2: $100,833.33 x (1 + 10% /12) = $101,673.61

Total interest = $1,673.61

With simple interest, you would earn interest of $833.33 per month, with total interest of $1,666.67, slightly less than compounding interest because you are not earning interest on interest, just deposits.

To save you busting out the abacus to work out how much interest you can earn on our savings and deposit accounts (including term deposits), we’ve got an online savings interest calculator to do the hard work for you. You can see all our savings interest calculators here.

What to look for in a savings account

When you’re looking for a savings account, you might want to consider:

  • Account keeping fees – what are they and how often are they charged?
  • Minimum balance – is there a minimum balance you are required to maintain?
  • Card access – do you have access to an EFTPOS card or a Visa/Mastercard Debit card (enabling you to use your savings funds to make online purchases)
  • Bonus interest – do you get any bonus interest? For example, is there the chance for bonus interest if you make no withdrawals during the month (like our Bonus Saver)?
  • The interest rate – shop around for the best savings interest rate you can find. Even 0.05% of a difference can make an impact to your savings balance in the long run.

Enquire with us today or, if you’re an existing Qudos Bank customer you can open a Term Deposit within Online Banking.



Qudos Mutual Limited trading as Qudos Bank ABN 53 087 650 557 AFSL/Australian Credit Licence 238 305.

The information in this article is of a general nature and has been prepared without considering your objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances.

Before opening an account with us, you should read our Terms and Conditions for Savings Accounts and Payment Services and Financial Services Guide (available on our website at


Article published October 2018