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How to Calculate Daily Interest on a Savings Account

how is savings account interest calculated

When your money is in an interest-bearing savings account, you earn money every day without having to do a thing. Most banks only deposit interest into your savings account once per month, but you can calculate how much you earn each day. All you need to know is your account balance that day and your account’s annual interest rate. This exercise is especially applicable for children, who might have a hard time waiting a whole month to see their savings grow.

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Pinpoint the annual interest rate in the documents you received when you opened the savings account. Find the stated interest rate, not the annual percentage yield.

Look up whether the bank compounds your interest daily or monthly. If it compounds daily but deposits the interest monthly, start calculating interest from the day

after your last monthly interest deposit.

Divide your annual interest rate by 100 to convert it to a decimal. For example, an interest rate of 5 percent becomes 0.05.

Divide the decimal by 365 to calculate your daily interest multiplier. In this case, 0.05/365 is 0.000137.

Multiply your daily interest multiplier by the account balance at the beginning of the day. For example, if your account had $3,194, multiply this by 0.000137 to calculate that you earned 44 cents in interest.

Add this to the account balance if your bank compounds interest daily. The result is the starting balance for the next day's calculation. If your bank compounds interest monthly, keep track of the running total of interest apart from your regular balance and only add it to the balance at the end of the month.

Category: Personal Finance

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