How to Calculate Annualized Savings

The savings rate is based on the amount of income saved.

In general, you can do two things with your income: save it or spend it. The rate at which you save your income is referred to as your savings rate. For instance, if your income is $100,000 and you save $10,000 and spend $90,000, then you have a savings rate of 10 percent. Most banks and financial institutions pay interest on savings accounts, which are linked to various money market funds. If you're shopping around for the best rates, it is helpful to know how to calculate the annualized savings rate of the savings fund.

Step 1

Identify the savings rate of the fund your savings rate is linked to. You can ask your banker or stock broker for the rate by contacting customer service. For our purposes, let's say it's March 30 and the rate of return on the savings fund is 10 percent.

Step 2

Add up the number of days which have gone by in the year so far. For this example, March 30 is approximately 90 days into any given year.

Step 3

Add the year to date return to 1, and then divide this number by the number of days divided by 365. For this example, the calculation is 1.10 divided by .25 (90 divided by 365), or 4.4.

Step 4

Calculate annualized savings. Subtract one from the answer to Step 3. The calculation is 4.4 minus 1, or 3.4. So on an annualized basis, your savings account is making 3.4 percent.

references