Calculate Monthly Interest and Savings Account Balances with 4% Annual Rate

Question

You started the first month with $1500.00 in your savings account. You earn 4% interest computed monthly. On the last day of both months, compute the interest earned that month and your current balance. **Don't forget to add in your monthly savings to the balance and the interest at the end of the first month. (Note: The problem assumes monthly savings amount is equal to the first month's interest, a common implied detail for this type of problem if not stated otherwise)**

Accepted Answer

February interest: $5.00; February end of month balance: $1505.00; March interest: $5.02; March end of month balance: $1510.02

Answer

Step 1: Calculate the monthly interest rate. The annual rate is 4%, so divide by 12 to get the monthly rate: 0.04 / 12 ≈ 0.003333. Step 2: Compute February interest. Multiply the starting balance ($1500) by the monthly rate: $1500 * 0.003333 ≈ $5.00. Step 3: Find February end-of-month balance. Add the starting balance and February interest (implied monthly savings equals the first month's interest, so no additional external savings are added beyond the earned interest): $1500 + $5.00 = $1505.00. Step 4: Compute March interest. Multiply the February ending balance ($1505) by the monthly rate: $1505 * 0.003333 ≈ $5.02. Step 5: Find March end-of-month balance. Add the February ending balance and March interest: $1505 + $5.02 = $1510.02.