How Savings Account Interest Works and Is Calculated

Do you understand how interest rates affect the money in your bank account? If not, you’re not alone. Research by Angus Reid on behalf of PC Financial found many Canadians are unclear about how interest works.

When you keep money in a savings account, the bank or financial institution pays you interest for using your funds. Interest is typically calculated daily and paid monthly, and the annual interest rate is shown as a percentage. A higher rate means your savings grow faster, so even small differences in rate can add up over time.

For example, with $10,000 in a savings account earning 2.7% annually, you would earn about $314 in interest over one year. That return requires no extra effort. The longer you leave money in the account, the more interest you accumulate—so starting early and saving consistently can make a big difference.

How banks set interest rates

Banks, credit unions and fintechs typically use the Bank of Canada’s policy interest rate as a guide when setting account rates. When the central bank raises or lowers its policy rate, financial institutions usually adjust their deposit and savings rates shortly afterward.

Not every provider offers the same rate. Some institutions promote a high, headline rate but attach conditions—such as a required minimum balance, direct deposit, or limited-time promotional terms. Others may charge monthly fees that reduce the net return on your savings. Because of these variations, it’s important to compare account features, fees and qualifying conditions, not just the advertised rate.

PC Money Account

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Monthly fee: $0
Transactions: Free, unlimited transactions
Regular interest rate on balance: 2.2%
Welcome offer: None at this time

Rewards: Up to 25 points per dollar

25 PC Optimum points per $1 at Shoppers Drug Mart
10 points at Loblaw banner grocery stores
5 points on all other purchases

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Finding the best rate

Promotional or “teaser” rates can look attractive, but they often last only a few months before reverting to the regular rate. Promotions may require conditions such as switching direct deposits or meeting transaction thresholds. Because of that, many customers prefer a stable everyday rate that applies regardless of account activity.

According to the PC Financial survey, many Canadians are frustrated when promotional rates expire, and a significant portion express distrust toward banks’ transparency on savings products. To protect your return, read the fine print, compare the regular (ongoing) interest rate, and review account fees and eligibility conditions.

Growing your money with compound interest

Opening an account with a strong ongoing interest rate and no monthly fee is a good first step. Compound interest helps your savings grow faster: you earn interest on both your principal and on the interest already paid into the account. Regular additional deposits amplify this effect, so make a plan to add to your savings consistently.

Below is an example of how compound interest, combined with monthly deposits, can increase earnings over time. This example assumes monthly compounding and an ongoing rate of 2.2% on an initial $10,000 balance with $100 added each month.

Interest rate	Original balance	Years of growth	Interest earned with no additional deposits	Interest earned with additional deposits of $100/month
2.2%	$10,000	1	$314.44	$331.64
2.2%	$10,000	2	$638.77	$711.44
2.2%	$10,000	3	$973.30	$1,140.92
2.2%	$10,000	4	$1,318.35	$1,621.63
2.2%	$10,000	5	$1,674.25	$2,155.20

The table shows how compound interest plus regular monthly contributions accelerates savings growth, helping you reach goals faster—whether you’re saving for a vacation, renovation, or a down payment.

A better way to earn: The PC Money Account

If you’re looking for a straightforward account without hidden conditions, the PC Money Account is presented as an all-in-one option designed for saving. It advertises a regular everyday interest rate of 2.2% on your savings balance rather than a short-term promotional rate.

The account is described as having no monthly fee, no minimum balance requirement to earn the stated rate, and no time commitment. It also offers PC Optimum rewards on purchases, which can be redeemed at participating grocery and retail banners.

The product notes mention a welcome bonus of PC Optimum points for new sign-ups and emphasize the combination of everyday interest plus rewards as a way to increase overall value from the account.

Start saving and earning rewards today

Whether your goal is a short-term purchase or long-term savings, moving funds into a high-interest, low-fee savings feature and contributing regularly can speed progress. Consistent deposits and the power of compound interest are key to building balance over time.

For those prioritizing everyday interest, low fees and reward earning, the PC Money Account is presented as an option that combines these features in a single account. Remember to review terms and conditions, confirm current rates and promotions, and compare alternatives before choosing the account that best fits your financial needs.

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