How do banks calculate interest on savings accounts

Banks calculate interest on savings accounts using the daily balance method. Interest is typically calculated every day on the closing balance of the account and is usually credited to the account on a monthly or quarterly basis. The formula generally used is: Daily Interest = (Daily Balance × Annual Interest Rate) / 365. Key factors include:

• The interest rate is expressed as an Annual Percentage Yield (APY) or Annual Percentage Rate (APR).
• Most banks use compound interest, meaning you earn interest on both your principal and previously earned interest.