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Calculating Interest on a "Virtual" Savings Account (lemmy.world)

submitted 1 year ago by wulf@lemmy.world to c/personalfinance@lemmy.ml

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So for our kids, who are still quite young, instead of opening an entire other savings account for them, we decided to do "virtual" savings accounts.

Essentially, we have a spreadsheet with what money they have gotten from birthdays and other events, then we just deposit it in our savings. They can withdraw whenever they want.

In this spreadsheet, I've been trying to keep track of interest (in a basic way), to show how saving can also help them "earn" money. However, I don't think I'm doing it correctly.

See Google sheet: dates are not correct and interest rates are not accurate. I just wanted to show that we are attempting to give the "correct" interest rate for the given date. (I know interest rates fluctuate all the time, just trying to not make it not too difficult to maintain)

https://docs.google.com/spreadsheets/d/1rwwIFVOGYt-lIx8Dtuv_6PGz28jSNQbH7LcZG2qKlfg/edit?usp=sharing

Thank you for taking a look, I've been trying to get this right for a while.

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[–] sugar_in_your_tea@sh.itjust.works 5 points 1 year ago

I just calculate it at the end of every month by taking the balance and multiplying by the monthly interest rate. So if you offer 6% per year, multiply by 6/12, or 0.5%. So I have a column called "interest" and the next month's balance is the interest plus the previous month's interest, and then I drag both columns down as needed.

To make things easier to see, I also have a "deposits" and "withdrawals" column for each month and calculate that in to the current month's interest (so current month is previous balance - withdrawals + deposits + previous month interest, and interest is current month * monthly interest rate).

This isn't how banks do it (they do average daily balance), but it's good enough and encourages my kids to keep month invested through the end of the month.