Calculating Interest To make it worthwhile for you to keep your money with a bank, the bank offers you an interest rate on your savings. Interest will be applied to the balance of an account once per month. Lets do an example suppose you had $10,000 in a bank account and the bank paid you monthly interest at a rate of 3% per year. That would mean the bank pays you 3% of your balance divided by 12 (because there are 12 months in a year) per month. If we start our example on January and run it for a few months (and we dont deposit or withdraw any money throughout the year) then we end up with our bank balance changing like this: Note: 3% divided by 12 is 0.25% per month so well multiply our balance by 1.0025 to get the new balance. Jan Feb Mar Apr May Jun Jul Aug Etc. 10,000.00 10,025.00 10,050.06 10,075.19 10,100.38 10,125.63 10,150.94 10,176.32 Whats happening here is that the interest is compounding which just means that we get that 0.25% applied not only to our principle balance (i.e. the $10,000 we started with), but it also gets applied to the interest we earnt. Although 3% interest is very low (but in line with the best rates youd get in Australia at the moment because interest rates are very low), over time this compounding makes a serious difference! Because FedUni Bank is the greatest bank of all time, it offers all accounts an interest rate of 33%