Silly question about interest...

dllive

Hi everyone,
I have a silly question which - when it occurred to me - I was surprised I didnt know the answer: If I were to save in a fixed term savings account at 4% - does this mean that I will earn 4% PER YEAR?
So if I saved £1k into a 5 year fixed account at 4% I would get £1200 back? Or would I just get £1040?
See - I told you it was a silly question!

jayII

If you put £1000 into the account at the start of the 5 years, you'd get 4% per year.

I'm not an expert, but it might be a little more than 1200, because you'd get compound interest (interest on your interest), unless the interest was restricted to the first £1000 in the account.

I can't find the calculator, but in the first year you'd get £40, in the second year you'd get £41.60, and so on.

NectarCollector

compound interest formula:

x = P(1+i/100)^n

where P is principal (what you start with)
,i is interest rate
n is the number of years you want to save for.
x is the amount of cash you'd have after all of that

or u can use the compound interest calculator which is somewhere on the MSE site

ChesterDog

...and watch out for whether your 4% is gross or net of tax, if applicable.

dllive

Ah! Thankyou!