How to calculate interest earned on a business savings account: a step-by-step guide

Managing a business savings account is simple, but calculating the interest earned isn’t always straightforward. Understanding how it works can help you make better decisions about where and how to save. 

If you are looking for a straightforward option that helps your savings grow, our Business Rewards Account has a Savings Pot feature, designed to make savings interest clear and accessible.

Let’s dive in on how to calculate what your savings are really earning. 

What is interest on a business savings account? 

Interest is the money a bank pays you for keeping your funds in a business savings account. Think of it as a reward for letting your money sit safely. The more money you keep in the account, the more interest you earn. 

To calculate interest, banks use an interest rate applied to your balance. The rate may change over time, and the interest can be calculated daily, monthly, or annually, depending on your account. 

When it comes to types of interest, there’s simple interest and .compound interest. Simple interest is calculated only on the initial balance, while compound interest builds on both your principal and previously earned interest. This means compound interest can really help your savings grow faster. 

Want to know which business savings account fits your business needs? check out our article: What business savings account should I open? A guide for business owners.

Key factors that affect interest earned

The interest rate is the most obvious factor as it directly impacts how much you earn. A higher interest rate means more money in your pocket. It’s worth spending a bit of time shopping around for the best rate, as even a small difference can really add up over time. 

Your account balance matters a lot too. The more money you have in your account, the more interest you earn. Larger balances naturally generate more interest, so keeping your balance high can significantly increase your returns. 

Compounding frequency is also important. The more often interest is added to your balance, the quicker your savings will grow. Daily compounding helps your money grow fastest because you earn interest on your previous interest every single day. 

Lastly, the deposit period is crucial. The longer you leave your money untouched, the more you will benefit from compound interest. Try not to withdraw funds too frequently, and your savings will steadily grow. 

Why compounding frequency matters 

Compounding is a powerful tool because it lets your interest earn even more interest. Each time interest is added to your balance, the next round of interest is calculated on this larger amount, including previous interest. 

Daily compounding is typically more beneficial than yearly compounding because interest is added every day instead of once a year. This means your savings build up faster, with interest stacking up day after day. 

Banks compound interest differently depending on the account. Some compound interest daily, others monthly or yearly. Always check compounding frequency when choosing a savings account to ensure you maximise earnings.

Tips to maximise interest on your business savings account 

To make the most of your business savings, start by shopping around for the best interest rates. Don't settle for the first option you see. Comparing rates across different banks can significantly boost your savings, especially if you are depositing large amounts. 

Maintaining higher balances is also key. The more money in your account, the more interest you will accumulate. Try to keep a healthy balance by limiting withdrawals to necessary occasions only. 

Lastly, consider setting up automatic deposits. Regular, consistent contributions help steadily increase your balance, allowing compound interest to be more effective without requiring much thought from you. 

Common mistakes to avoid 

One common mistake is overlooking compounding. Not fully understanding how compound interest works could mean missing out on considerable gains. Choosing an account with frequent compounding can make a substantial difference in your overall earnings. 

Another mistake is withdrawing funds too frequently. While sometimes necessary, regularly dipping into your savings can significantly slow your interest growth. Every withdrawal reduces the amount of money available to earn interest. 

Finally, not regularly reviewing interest rates can prove costly. Interest rates fluctuate, especially with variable accounts, and failing to notice rate changes can mean missing better opportunities elsewhere. Stay alert and regularly check your rate to ensure your money earns as much interest as possible. 

Final thoughts 

Understanding how interest works, puts you in control of your business savings. Whether you are using simple or compound interest, the right strategy can help your money grow more efficiently over time. 

By maintaining a healthy balance, choosing the right account, and keeping an eye on compounding frequency, you can make your savings work harder without taking on extra risk. 

Turn your spare cash into a tool for growth 

With up to 4.33% AER (variable)* and no account opening fees, our Savings Pot exclusive to our Business Rewards Account helps you earn while keeping your money available when you need it. 

You’ll benefit from instant access, monthly interest payments and guidance from a dedicated relationship manager who’s here to support your goals. 

Start building a stronger foundation. Open your Savings Pot today and make the most of what you’ve set aside. 

*Rate includes standard rate of 3.33% AER (minimum balance applies) plus a 0.5% boost each month if you make 15 bank transfers out of the account in the previous month, and a 0.5% boost for six months if you complete a switch with CASS. Rates correct as of 9th May 2025. ‘AER’ stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. Subject to eligibility – see Savings Pot Key Product Information for more details.

Links were live and information was correct at the time of writing the article.

Disclaimer: This is information – not financial advice or recommendation

The content and materials featured in this article are for your information and education only, and are not intended to take into consideration any particular recipients’ financial situation. The product details and interest rates referred to are correct at the time of writing.

The information does not constitute financial advice or recommendation and should not be considered as such. Allica Bank will not accept any liability for any loss, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.