How much will you earn on savings? Calculate simple and compound interest.
Savings Guide
Types of interest
Simple interest is calculated only from the initial principal for the entire saving period. Formula: principal × rate × time. Compound interest is calculated from principal plus previously earned interest — capitalization occurs. For long-term saving, the difference is enormous — after 10 years at 5% annual interest, compound interest yields over 12% more than simple interest. That's why Einstein called compound interest "the eighth wonder of the world."
Deposits and savings accounts
Term deposits are the simplest way to save with guaranteed returns. Banks offer a fixed rate for the entire deposit period — no worry about interest rate fluctuations. Savings accounts offer more flexibility (deposits and withdrawals possible), but usually with lower rates. In Poland, bank deposits are guaranteed by the Bank Guarantee Fund up to 100 000 euros, meaning full security. Compare offers from different banks before opening a deposit.
Real vs nominal interest
Nominal interest is the rate announced by banks. Real interest accounts for inflation — tells how much you'll actually gain after accounting for price increases. Formula: real = nominal minus inflation. With a 5% deposit and 3% inflation, real earnings are only 2%. That's why when choosing a deposit, check not only nominal interest but also estimated inflation and real return rate.
Alternative savings forms
Beyond deposits and savings accounts, there are other ways to grow savings: investment funds (offer higher potential returns but with risk), government bonds (including inflation-indexed), dividend-paying stocks (generate regular income), real estate (rental generates cash flow), or precious metals (crisis protection). Each has a different risk and return profile — matching to your goals and time horizon is important.
"Up to 5%" pays 0.95% on 10,000 and 0.59% on 50,000
Headline savings rates are usually capped at a balance tier. A 5% account paying that rate on the first 1,000 and 0.5% above it delivers a blended 0.95% on ten thousand — and the more you save, the lower your effective rate falls. The advertised number is accurate and almost never the one you receive.
How it works
- Calculates interest across balance tiers rather than applying one rate to the whole sum.
- Converts a nominal rate into the effective annual yield for a given compounding frequency.
- Applies tax on interest, which is deducted before the money reaches you.
blended rate = total interest ÷ total balance APY = (1 + nominal ÷ periods)^periods − 1 net = gross × (1 − tax on savings interest)
Worked example
An account paying 5% on the first 1,000 and 0.5% above it.
- 1,000 balance: 50 interest, a true 5.000%
- 5,000 balance: 70 interest, a blended 1.400%
- 10,000 balance: 95 interest, a blended 0.950%
- 50,000 balance: 295 interest, a blended 0.590%
The effective rate falls as the balance rises, which is the opposite of what the headline implies. On 10,000 the blended 0.95% becomes 0.77% after a 19% tax on interest — 77 on ten thousand.
Reading the result
- Split balances across the tier boundary if the rate difference is large. Two accounts each holding 1,000 at 5% beat one holding 2,000 at a blended 2.75%, and the effort is a single transfer.
- Compounding frequency barely moves the answer. At a 5% nominal rate, annual compounding gives 5.000% and daily gives 5.127% — a difference of a tenth of a point against tier structures that cost several points.
- Introductory rates usually revert. A twelve-month bonus rate that drops afterwards is worth its average over the period you will actually hold the account, not its opening figure — and accounts are rarely moved on the day the bonus ends.
- Interest is taxed in most jurisdictions, at 19% in Poland and at income-tax rates in many others. Compare accounts on the net figure, since a tax-sheltered account at a lower headline rate can beat a taxable one at a higher.
Common questions
- Why is my interest lower than the advertised rate?
- Almost always a balance tier. The headline applies to a slice — often the first 1,000 or 2,000 — and everything above earns a much lower rate. Divide the interest you actually received by your balance to see what you are really being paid.
- Does daily compounding beat monthly?
- By 0.011 of a percentage point at 5%. It is real and it is negligible next to the tier structure, the introductory period and the tax treatment, all of which move the outcome by whole points.