1. What is the Monthly Interest Formula?

The monthly interest formula calculates the interest earned on a Canadian savings account each month. It's based on the principal amount and annual interest rate, divided by 12 months.

2. How Does the Calculator Work?

The calculator uses the monthly interest formula:

Where:

• \( P \) — Principal amount (CAD)
• \( R \) — Annual interest rate (decimal)
• \( I \) — Monthly interest earned (CAD)

Explanation: The formula divides the annual interest rate by 12 to get the monthly rate, then multiplies by the principal amount to calculate monthly interest earnings.

3. Importance of Monthly Interest Calculation

Details: Calculating monthly interest helps Canadians understand their savings growth, compare different savings accounts, and plan their financial goals effectively.

4. Using the Calculator

Tips: Enter principal amount in CAD, annual interest rate as a decimal (e.g., 0.05 for 5%). All values must be valid (principal > 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 12 in the formula?
A: Dividing by 12 converts the annual interest rate to a monthly rate, as there are 12 months in a year.

Q2: How do I convert percentage to decimal?
A: Divide the percentage by 100 (e.g., 5% becomes 0.05, 2.25% becomes 0.0225).

Q3: Does this calculation include compounding?
A: No, this calculates simple monthly interest. For compound interest, the calculation would be different.

Q4: Are Canadian savings accounts taxed?
A: Yes, interest earned on savings accounts is considered taxable income in Canada and must be reported.

Q5: What's a typical interest rate for Canadian savings accounts?
A: Rates vary by institution and account type, typically ranging from 0.01% to 2.5% or higher for high-interest savings accounts.