how does interest rate affect money earned on a savings account?

The interest rate on a savings account directly affects the money earned by determining the percentage of the deposited amount that the bank pays you as interest. A higher interest rate means more money earned on the savings. For example, if you have $1,000 in a savings account with a 2% interest rate, you would earn $20 in interest over a year, while at a 7% rate, the earnings would be about $70. The interest can be simple or compound, with compound interest allowing you to earn interest on the interest already accumulated, growing your savings faster. Additionally, interest rates can be fixed or variable and are influenced by factors like central bank rates and market competition among banks. When central banks raise interest rates, savings account rates tend to increase, allowing savers to earn more, whereas the opposite happens when rates are cut. The actual annual return also takes into account how often interest is paid and compounded, affecting the growth of the savings over time.