Do not understand how savings interest (using the daily balance method) is calculated

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Stewsey

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Apr 2, 2018
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Here's there info:

"Interest is calculated using the daily balance method. This method applies a daily periodic rate to the principal in the account each day. Interest is compounded on a daily basis and credited to the account on a monthly basis."

So can someone assist with helping me understand how to calculate this...using real numbers?
 
Stewsey said:
Here's there info:

"Interest is calculated using the daily balance method. This method applies a daily periodic rate to the principal in the account each day. Interest is compounded on a daily basis and credited to the account on a monthly basis."

So can someone assist with helping me understand how to calculate this...using real numbers?
Click to expand...
Do you know the definitions of the terms used?
 
Stewsey said:
Well, here's their site: https://www.synchronybank.com/banking/high-yield-savings/

By term do you mean the 1.55?
Click to expand...
"Interest is calculated using the daily balance method. This method applies a daily periodic rate to the principal in the account each day. Interest is compounded on a daily basis and credited to the account on a monthly basis."

So can someone assist with helping me understand how to calculate this...using real numbers?
Click to expand...

What I meant was:

Do you understand what is meant by the word "Interest" in this context?

Do you understand what is meant by the word "daily balance method" in this context?

Do you understand what is meant by the word "principal " in this context? ....... etc.
 
Subhotosh Khan said:
What I meant was:

Do you understand what is meant by the word "Interest" in this context?

Do you understand what is meant by the word "daily balance method" in this context?

Do you understand what is meant by the word "principal " in this context? ....... etc.
Click to expand...

No, I suck at math. That's why I'm here. :) Please elaborate.
 
Subhotosh Khan said:
What I meant was:

Do you understand what is meant by the word "Interest" in this context?

Do you understand what is meant by the word "daily balance method" in this context?

Do you understand what is meant by the word "principal " in this context? ....... etc.
Click to expand...

No, I don't understand any of that. Can you, or someone else, walk me through it?
 
Here's there info:

"Interest is calculated using the daily balance method. This method applies a daily periodic rate to the principal in the account each day. Interest is compounded on a daily basis and credited to the account on a monthly basis."

So can someone assist with helping me understand how to calculate this...using real numbers?
Click to expand...

Google those terms in red.

Tell us what you found.
 
The terms that Subhotosh asked you about are not math terms but banking terms. In the US, they are defined by trade usage as modified by contract, regulation, and statute. Unless you can give us the actual language from the specific bank's deposit agreement, which is a contract, even a specialist in banking law cannot tell you exactly what that means.

I can tell you what it probably means in the US, but to be sure you will need to get an opinion from a lawyer on the interrelation between the bank's contract and Federal Reserve regulations CC and DD.

Take the ending collected balance (not the ledger balance) at the end of each day. Multiply that by the annual rate applicable to that day. Divide by 365 (or perhaps 366 in a leap year).

Keep track of all those amounts for a month. At the end of the month, add them all up, and add that total to the collected balance in your account.

Some banks, such as the one that I am on the board of, will give you a printed accounting of the detailed calculation upon request.
 
The "Daily Balance" is the amount of money in that account on that day. If an account is earning "r" percent daily, multiply the amount of money in that account on that day by "r" (converted from a percent to a number: 1% is the number .01) to get the daily interest and add it to the money in the account.

As in an example given before, if an account is earning 8% annual interest and there are 365 days in a year (banking practice is to ignore leap years and take 365 days in every year) then the account is earning 8%/365= 0.0219% daily interest which converts to the number 0.000219. If the account had $10,000 in it, it would earn (0.000219)(10000)= $2.19 interest in one day. That interest would be added to the balance so the next day the account would have $10,002.19 in it.
 
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