Use the Tiered Interest Calculator to estimate interest or required balance for marginal stepped tiers and whole-balance rate schedules.
Tiered Interest Formula
Tiered accounts can apply rates in two different ways. Under a marginal or stepped structure, each portion of the balance earns the rate assigned to its tier. For three tiers, annual interest is:
I = min(B,T1)*r1 + max(min(B,T2)-T1,0)*r2 + max(B-T2,0)*r3
For a holding period shorter or longer than one year, the calculator prorates that annual interest:
I_period = I * months / 12
Under a whole-balance structure, the balance determines one applicable rate and that single rate applies to the full balance:
I = B * r_applicable * months / 12
Variables:
- B is the account balance
- T1 and T2 are the upper balance thresholds for Tiers 1 and 2
- r1, r2, and r3 are the annual rates for the three tiers
- I is interest over the selected holding period
The solve-for selector can calculate interest from a known balance or estimate the minimum balance needed to reach a target interest amount. For a whole-balance schedule, the minimum-balance result may land exactly at a threshold because crossing that threshold can change the rate on the entire balance.
Tiered Interest Reference Table
This example uses marginal tiers: 1.5% on the first $10,000, 2.0% on the next $40,000, and 2.5% above $50,000. The table assumes a 12-month holding period and a constant balance.
| Balance | Annual interest | Blended annual rate |
|---|---|---|
| $5,000 | $75 | 1.50% |
| $10,000 | $150 | 1.50% |
| $25,000 | $450 | 1.80% |
| $50,000 | $950 | 1.90% |
| $75,000 | $1,575 | 2.10% |
| $100,000 | $2,200 | 2.20% |
The blended rate is total annual interest divided by the full balance. With marginal tiers, the blended rate approaches the highest tier rate as the balance grows but does not immediately jump to it.
Example Problems
Example 1: Calculate marginal-tier interest.
A $75,000 balance uses the tier schedule above. The first $10,000 earns $150, the next $40,000 earns $800, and the final $25,000 earns $625. Total annual interest is $1,575, for a blended rate of 2.10%.
Example 2: Prorate interest for six months.
Using the same $75,000 balance and rates, annual interest is $1,575. For six months, multiply by 6 / 12. The estimated interest is $787.50.
Frequently Asked Questions
What is the difference between marginal and whole-balance tiers?
Marginal tiers apply each rate only to the portion of the balance inside that band. Whole-balance tiers apply one rate to the entire balance after the account reaches a stated threshold. The disclosure should state which method is used.
Why can a higher balance have a lower blended rate than the top tier rate?
Under marginal tiers, lower portions of the balance continue earning lower rates. The top rate applies only to the amount above the highest threshold, so the overall blended rate remains between the tier rates.
Does the calculator include compounding or changing balances?
No. It prorates stated annual rates while holding the balance constant until interest is credited. Deposits, withdrawals, compounding during the period, minimum-balance tests, and rate changes can alter actual interest.
